Hi,

How to pay estimated taxes (federal, social security tax, Medicare tax and State tax) for year 2007. I see estimated tax calculation details on IRS site and is it includes only federal tax only or social security and Medicare taxes also.
How to pay estimated tax for state.

Thanks in advance for your help/answers.

Thanks,

Sai

AtlantaTaxExpert

The estimated tax computation includes self-employment taxes if you are self-employed. If you are an employee, then only income taxes are considered.

As for the state, it depends on the state.

Mobea

A quick way to figure your Estimated tax payments for 2007 is to look at your tax liability for 2006 and divide that number by 4 quarters. Estimated tax payments are made every 3 months (quarters) Say your tax liability was 2006 was $2000 and you paid in $2500. You would recieve a $500 refund, right? Your estimated tax payments would be $500 for the 1st quater, $500 for the 2nd quarter, $500 for he 3rd quarter and $500 for the 4th quarter because your tax liability for 2006 was $2000. Or you could use your $500 refund and have it applied to your 1st quarter estimated tax payments and skip making that 1st payment.
Basically, it is the same as when an employer withholds federal income tax from your check and they also withhold 1/2 of Medicare and Social Security tax. The employer pays the other half of Medicare and Social Security for you. When you are self-employed, you pay both halfs. That's the only difference.
Hope this helps.
Mobea

AtlantaTaxExpert

Mobea:

Your answer is fine for the example you cite.

However, it is inadequate if the person doing the estimate tax computation has a LARGE increase (in excess of $150K) in income from one year to the next.

Further, while your example will probably prevent the person from having to pay under-payment penalties, it will not prepare them for the LARGE check they would have to write if they did not properly compute their tax total liability and make the proper quarterly estimated tax payments.