The U.S. tax system requires that income taxes be paid as income is earned or received during the year. For wages, this is accomplished by the employer withholding tax from the employee’s earnings and transferring the withheld tax to the IRS, which the employee then claims as a payment credit on their individual income tax return. When the amount of income tax withheld isn’t enough, or if the individual receives income on which tax isn’t withheld (such as interest, dividends, capital gains, rental profits, self- employment income, etc.), the individual may have to make estimated tax payments. Taxpayers who are self-employed generally need to make estimated tax payments to cover not only their income tax liability but also the self-employment tax they owe. If not enough tax is prepaid by withholding and estimated tax payments, the individual may have to pay a penalty, which is effectively interest charged on the underpayment. But there are several avenues available to avoid interest penalties for underpayment of estimated taxes.