Our tax system is pay-as-you-go, which means you're supposed to pay tax on your income as it comes rolling in.
If you're earning wages or a salary, your employer or payroll department takes care of that by withholding taxes from each paycheck. But if you receive income that doesn't come from an employer, it's up to you to make estimated tax payments on that income if you want to avoid possible underpayment penalties.
Generally, you should make estimated tax payments if you are self-employed or if you expect to receive significant income from non-wage sources such as retirement accounts, rental income, stock sales, interest, dividends, or alimony.
Wage-earning couples, particularly those with substantial incomes, may also need to pay estimated taxes if their withholdings aren't enough to cover the so-called "marriage penalty."
We'll automatically prepare estimated tax payment vouchers (Form 1040-ES) if your current tax payments put you at risk for an underpayment penalty next year.