What are 'estimated tax payments' in TurboTax?

Estimated tax payments refer to the prepayment of taxes made throughout the year based on the taxpayer's expected income and tax liability. Individuals, especially those with income that isn't subject to withholding—such as self-employed individuals, freelancers, or those with significant investment income—typically must calculate and pay these amounts quarterly.

This practice allows taxpayers to meet their tax obligations gradually rather than facing a large tax bill when filing their annual tax return. The IRS requires these payments to avoid penalties for underpayment of taxes. While self-employed individuals commonly make estimated tax payments, it is not exclusive to them; anyone who meets certain income thresholds may need to make these payments.

This understanding is essential because it highlights the significance of planning for tax liabilities throughout the year, rather than solely at tax filing time.