The government wants their money. And if you owe them, they don't just want it in a lump sum on April 15. They want it in installments throughout the year.
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We have to pay regular taxes AND self employment tax because our stipend is reported on a 1099-misc and nothing is taken out. Self employment tax is part Social Security, part Medicare.
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If you expect to owe $1000 or more in taxes, you should pay estimated tax.
- What? You need to send money, in installments, to the IRS.
- Why? You might get fined if you don't. It probably won't be huge and you might be able to get out of it.
- How do I get out of it? If you didn't owe the IRS any money in the previous tax year (you broke even or got a refund), they won't penalize you.
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I got a refund last year, so do I really need to pay estimated taxes? No, but you might have to pay a big chunk of money when you do your taxes.