Yes. You pay your share of income tax on your current income either through withholding by your employer, or, via quarterly estimated payments. As a general rule, you have to have paid in at least 90% of your current income taxes measured on an annual basis, unless you have a “Safe Harbor” situation.
Safe Harbor – As long as your adjusted gross income (“AGI”) from your prior year tax return (for 2014 this was Line 37 on Form 1040) was less than $150,000 married, or $75,000 single, you are eligible for the “100% Safe Harbor”. This means that as long as you have paid in the current year at least 100% of your prior year tax, you are “safe”. If your prior year AGI was more than these amounts above, you still get a “Safe Harbor”, but it is 110% of your prior year tax.
All of the above measurements are based on a total tax for the current year. What if my income is seasonal, or has wild swings? When you have a substantial level of uneven income in the year, you may use the annualized installment method to determine your estimated tax liability based on only one quarter at a time. When you elect to use this method you will have to file Form 2210 with your tax return.
In addition to the general rules described briefly above, there are many details involved concerning income and income taxes that need to be correctly understood and tabulated in order to comply with all of the requirements and avoid underpayment penalties and interest. Additionally, state income taxes often follow different rules.
These are just a few examples of services that Di Iorio & Di Iorio, LLC tax professionals can help you with.