I'll respond to your second question first. Most of the time you may not have tax withheld from independent contractor payments.

No, to your first question: Estimated tax payments, (both federal and state) may or may not be required.

Individuals must pay 25% of a required annual payment by April 15, June 15, September 15, and January 15, to avoid an underpayment penalty. The required annual payment for most individuals is the lower of 90% of the tax shown on the current years return or 100% of the tax shown on the return for the previous year. Certain individuals must meet a more rigorous requirement (i.e., those whose previous years adjusted gross income was over $150,000 ($75,000 if married filing separately).

Most people who receive the bulk of their income in the form of wages satisfy these payment requirements through the tax withheld by their employer.

If you fail to make the required payments, you may be subject to an underpayment penalty. The penalty is the product of the interest rate charged on deficiencies times the amount of the underpayment for the period of the underpayment.

Most individuals make estimated tax payments in four installments. In other words, the required annual payment is divided by four and the four equal payments are made by the due dates. You may be able to make smaller payments under the annualized income method. This method is useful to people whose income flow is not uniform over the year.

Please note that the estimated tax rules can become quite involved and I have not tried to provide every case or exception here. Please feel free to send follow-up questions to me directly.

Zip Code: 27401/27705