Whereas most employees withhold a certain amount from each paycheck from an employer, self-employed, contract, or a number of other workers make Estimated Tax Payments (ETPs).  Additionally, taxpayers who receive payments from sources other than their employer, such as dividends, interest, royalties, etc. are required to submit Estimated Tax Payments four times per year.  The number of times the individual is required to deal with the IRS can seem daunting at first, but it is well worth it for him/her to retain compliant with the IRS.

After each quarter, as the individual accrues income from sources that do not automatically withhold income for the federal government, the individual pays estimated tax payments on that income.  Both ways of remaining compliant with the IRS, that is, by withholding funds from paychecks and submitting ETPs, are designed to help the taxpayer avoid accumulating IRS tax debt.  ETPs are a little more involved, but all the relevant information can be found in the Estimated Tax Worksheet.

There are a number of reasons why an individual would want to send in ETPs regularly.  Firstly, it makes budgeting concerns easier, since tax payments are smaller and made more regularly, they are more easily planned.  Secondly, should the individual accrue an IRS tax debt, having submitted ETPs regularly and on time improves the individual’s prospects for resolving his/her tax debt.  In short, ETPs help the taxpayer avoid trouble with the IRS while serving as insurance that, should something unforeseen occur that drives an individual into tax debt, the individual would be better prepared to cope with the problem without significant or longstanding financial harm.