The U.S. tax system operates on a pay-as-you-earn basis, requiring taxes to be paid as income is received. For employees, employers typically manage this through withholding. However, for those without automatic withholding, such as the self-employed, estimated tax payments are necessary to fulfill this requirement. These payments cover not only federal income tax, but also self-employment taxes, which include Social Security and Medicare contributions.

Types of Income Subject to Estimated Taxes

Estimated taxes apply to a variety of income sources, including:

  • Self-employment earnings
  • Freelance and contract work
  • Dividends
  • Capital gains
  • Interest
  • Royalties
  • Rental income
  • Taxable unemployment benefits
  • Retirement income
  • Social Security benefits

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