How do you know whether you need to file federal and IL tax estimates?

Answer 1

You can read this on-line for yourself or contact the IRS and Illinois Department of Revenue for further information. This does not constitute tax advice and is simply provided as a reference.

For Federal, the following applies:

9.3 Estimated Tax: Individuals

How do I know if I have to file quarterly individual estimated tax payments?

Estimated tax payments can be used to pay Federal income tax, self-employment tax, and household employment tax. To estimate if you need to pay tax on income not subject to withholding or on other income from which not enough tax is withheld, you need to calculate if the total tax you'll owe on your annual income tax return will be covered by the amount of tax you have already had either:

withheld from wages and other payments, or
paid in earlier estimated payments for the year, or
credited to your account from adjustments or overpayments to previously filed returns.

Generally, you should make estimated tax payments if you will owe tax more, than an amount specific by law, after withholding and credits, and the total amount of tax withheld and your credits will be less than the smaller of:

90% of the tax to be shown on your current tax return, or
100% of the tax shown on your prior year's tax return, if your prior year's tax return covered all 12 months of the year. However, if your prior year's adjusted gross income exceeded a certain amount based on your filing status, then you must pay 110% instead of 100% of last year's tax. (Note: the percentages change depending on the tax year. Refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.)

Estimated tax requirements are different for farmers and fishermen. Publication 505, Chapter 2, 3, & 4, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules and about estimated tax in general. Get Form 1040-ES (PDF), Estimated Tax for Individuals, to help you figure your estimated tax liability.

Quoted from IL-1040-ES Estimated Income Tax Payments for Individuals 2007

Am I required to make estimated income tax payments? You must make estimated income tax payments if you reasonably expect your 2007 tax liability to exceed $500 after subtracting
your Illinois withholding and tax credits for:

income tax paid to other states,
Illinois Property Tax paid,
education expenses,
the Earned Income Credit,
and Schedule 1299-C, Income Tax Subtractions and Credits (for individuals).

You will likely need to make estimated payments if your Income is either fully or partially exempt from Illinois withholding. You should complete the Estimated Tax Worksheet on the next page to figure your estimated tax and to determine if you are required to make estimated tax payments. If you plan to file a joint income tax return, you must figure your estimated tax on the basis of your joint income.

Answer 2

The general rule, at least for Federal, is that you must file estimated quarterly payments if you will owe taxes on income that is not covered by withholding. If you have both W-2 / wage income and non-wage income, you can avoid estimated payments by withholding more from your wages to cover taxes on other income. The information below is copied from the IRS page linked below. IL appears to use $500 as the cutoff.

Generally, you should make estimated tax payments if you will owe tax more, than an amount specific by law, after withholding and credits, and the total amount of tax withheld and your credits will be less than the smaller of:

1. 90% of the tax to be shown on your current tax return, or
2. 100% of the tax shown on your prior year's tax return, if your prior year's tax return covered all 12 months of the year. However, if your prior year's adjusted gross income exceeded a certain amount based on your filing status, then you must pay 110% instead of 100% of last year's tax. (Note: the percentages change depending on the tax year. Refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.)

Answer 3

The other 2 answers are great but to make it short here's a rule of thumb:
If you don't have your taxes withheld (like on W-2's or 1099R's) you should prepare estimated payments.
90% of your prior year's tax should be paid in if you anticipate similar income.
Many people pay in 110% as they don't want to owe at the end of the year, and this provides them a little cushion.