Estimated Tax

If you're a regular employee at a company, you pay your taxes as you go throughout the year. You might not notice it, but the taxes come out of every paycheck you receive (that's the main difference between your gross pay and your net pay).

Not everyone makes their money as a regular employee, however. Some people earn money as contract workers or as freelancers. For the most part, these folks just receive a check and are then responsible for their own taxes.

However, these contract workers are still supposed to pay as they go. Thus, the estimated tax. Workers not paying through regular paychecks (this kind of employment is sometimes called "W-2 employment," named after the tax forms they receive at the end of the year) need to estimate how much taxes they will have to pay for the year and send in regular installments.

So if you're a freelance journalist, or a Hollywood actor, or a professional prize fighter, you might have to figure out the estimated tax. It's just an educated guess about what you'll eventually have to owe by the end of the year. With that number in mind, you can send in the appropriate periodic payments throughout the year.