According to the IRS website, www.irs.gov. , the federal income tax is a pay as you go tax. Your final bill is not tallied until April fifteenth of the following year. You pay installments as you accrue taxable income, especially wages.
For employees, this installments are handled by the employer. The company you work for requires you to fill out a W-4. Based on the information you provide on this form, the employer sends a certain percentage of your income to the internal revenue service.
People with two or more jobs and spouses who are filing jointly should pay careful attention to the information needed on the form and make sure to take zero exemptions at one of the jobs. If this form is not completed accurately, the taxpayer may have an overpayment or underpayment of taxes at the end of the year. Of course, an over-payment will result in a refund. An under-payment will result in a balloon payment.
The best option is to deposit as much as you are allowed into a traditional IRA. You can contribute to an IRA until the tax due date and qualify it for the previous year. If there is still a bill after this, you must pay it by April 15, the IRS has three types of payment plans. They are explained on the IRS website.
The website also offers a withholding calculator. Based on information on your most recent paychecks and on last year’s taxes, it will tell you if you should adjust your withholding for this year and by how much.
Anyone who has had a change in tax situations during the year should review their W-4 to see if it needs adjusting. These changes can include having or adopting a child, getting married or divorced and other personal situations. Anyone who has had to pay a large tax at the end of the year should also adjust their W-2.
If you have taxable income which is not taxed when you received it or owed a tax bill of $1000 last year, you may be required to pay an estimated tax on a quarterly basis. You may be able to avoid doing this by asking your employer to withhold more from your paycheck.l
States which impose taxes on wages also withhold installments of the taxes you owe, as does the Social Security Administration and Medicare. Some states charge employees for an unemployment tax and a disability tax.
All of this information should be on your paystub. The information from your last paycheck of one year or the first of the new year should match the information on the W-2 prepared by your company’s bookkeeper or payroll company.