If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty.

Individuals, including sole proprietors, partners, and S corporation shareholders generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Unless your total tax in the prior year was zero or you were not required to file an income tax return, it’s a good idea to calculate your current year estimate based on the prior safe harbor method.

Calculate your estimated tax using the Safe Harbor Method.

Here are a few simple steps you can take to calculate your estimated tax liability:

Step 1.  Multiply your total tax from the prior year by 100%.

Note for higher income tax payers –

If your Adjusted Gross Income (AGI) was more than $150,000 and your filing status is married filing jointly (or $75,000 if your filing status is single or married filing separately), then you need to multiply your total tax from the prior year by 110%.

Step 2.  Calculate the total income taxes you paid during the current tax year by adding the total income tax withheld from your salary or pension plus any additional estimated tax payments made.

Step 3.  Subtract #2 from #1.

If the resulting difference in Step 3 is greater than zero, you have until January 15th to pay the estimated tax liability with your fourth quarter estimated tax payment.  You can pay online, by phone, or by mail.

For more information, download a copy of IRS Form 1040-ES – Estimated Tax for Individuals.