It is now very important that estimated income tax payments are made as required and in the proper sums. That big computer in the IRS is watching this and you could get assessed for a late payment or for a deficient total payment. For tax year 2007, the estimated payments have to be made April 17, June 15, September 15 of 2007 and January 15, in 2008.

The required annual payment divided by 4 is:

1. Normally 100% of the tax shown on your income tax return for 2006, or
2. 90% of the tax shown on your 2007 return when filed.

Because many people find it difficult to estimate what their future actual tax statement would be, the first option is usually used. If a taxpayer has income of $150,000 or over in 2007, then he must pay 110% of the tax of 2006.

You cannot rely on your withholding tax from wages. If you have chosen a withholding tax based on 10 or more personal exemptions, you will have to file the quarterly returns to make up the difference.

The underpayment penalty would not apply to you if:

1. You are a farmer or fisherman and you may pay your entire estimated tax on January 15 or by March 1, if you file your income tax return on that date or before.
2. You are not a farmer or fisherman and you file your income tax return by January 31 and pay your taxes in full, then your fourth installment will be deemed paid but the question will be whether the prior three installments have been made.
3. You had no tax liability for 2007 or it was less than $1,000 after subtracting withholding taxes.

There are some other methods to avoid the penalty if there is some legitimate reason for the error. Some people may use the annualized income method and you should talk to your tax preparer if you have had an uneven income flow throughout 2007.