Most often, self-employed people, including some persons involved in the sharing economy, need to pay quarterly installments of estimated tax. Similarly, investors, retirees and others -- a substantial portion of whose income is not subject to withholding -- often need to make these payments as well. Besides self-employment income, other income generally not subject to withholding includes interest, dividends, capital gains, alimony and rental income.Because the U.S. tax system operates on a pay-as-you-go basis, taxpayers are required, by law, to pay most of their tax liability during the year. For 2018, this means that an estimated tax penalty will normally apply to anyone who pays too little tax, usually less than 90 percent, during the year through withholding, estimated tax payments or a combination of the two.
Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees, and those who receive income unevenly during the year. In addition, there is an exception to the penalty for those who base their payments of estimated tax on last year’s tax. Generally, taxpayers will not have an estimated tax penalty if they make payments equal to the lesser of 90 percent of the tax to be shown on their 2018 return or 100 percent of the tax shown on their 2017 return (110 percent if their income was more than $150,000). See Form 2210 and its instructions for more information.
IR-2018-93, April 13, 2018
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