A. This question is mostly for high earners with fluctuating annual incomes. Estimate and pay tax could be a frustrating experience - on the one hand, you don't want to overpay your estimated taxes and give a free loan to the IRS; on the other hand, you don't want to underpay your tax therefore incur interest charges and penalties.
IRS Estimated Tax Payment Rules
The IRS rules are quite simple on the surface - if you earn at least $1,000 a year in self-employment or investment income, rent, gambling winnings, or any income from which taxes are not withheld, you have to pay estimated taxes every quarter for what you think you will owe for the year.
If you don't pay for the quarterly deadline, you will be charged 3% on the amount due, plus a surcharge that is 0.81% at this time, even you overpay your taxes for the year and qualify for a refund in the end!
Unfortunately in reality, it's a lot hard to get the estimated tax amounts right, due to lots of factors, as we will show in our next blog post.