The federal income tax is a pay-as-you-go tax. You pay the tax as you earn or receive income during the year.
What is Tax Withholding?
If you're an employee, your employer probably withholds income tax from your paycheck and pays it to the IRS in your name.
What is Estimated Tax?
If you don’t pay your taxes through withholding, or don’t pay enough tax that way, you may have to pay estimated tax. People who are self-employed generally pay their tax this way.
Check Your Withholding
Avoid a surprise at tax time and check your withholding amount. Too little can lead to a tax bill or penalty. Too much can mean you won’t have use of the money until you receive a tax refund.
When to Check Your Withholding:
- Early in the year
- When the tax law changes
- When you have life changes:
- Lifestyle - Marriage, divorce, birth or adoption of a child, home purchase, retirement, filing chapter 11 bankruptcy
- Wage income - You or your spouse start or stop working or start or stop a second job
- Taxable income not subject to withholding - Interest income, dividends, capital gains, self employment income, IRA (including certain Roth IRA) distributions
- Adjustments to income - IRA deduction, student loan interest deduction, alimony expense
- Itemized deductions or tax credits - Medical expenses, taxes, interest expense, gifts to charity, dependent care expenses, education credit, child tax credit, earned income credit
Change Your Withholding
To change your tax withholding, use the results from the Withholding Estimator to determine if you should:
- Complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit it to your employer.
- Complete a new Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submit it to your payer
- Make an additional or estimated tax payment to the IRS before the end of the year
Understand Tax Withholding
- Your regular pay, commissions and vacation pay.
- Reimbursements and other expense allowances paid under a non-accountable plan.
- Pensions, bonuses, commissions, gambling winnings and certain other income.
It depends on:
- The amount of income you earn.
- Three types of information you give to your employer on Form W–4, Employee's Withholding Allowance Certificate:
- Your filing status: If you withhold at the single rate or at the lower married rate.
- How many withholding allowances you claim: Each allowance you claim reduces the amount withheld.
- If you withhold an additional amount: You can request an additional amount withheld from each paycheck.
Note: You must specify a filing status and a number of withholding allowances on Form W–4. You cannot specify only a dollar amount of withholding.
- Publication 15 (Circular E), Employer's Tax Guide (PDF) - includes tax withholding tables
- Publication 505, Tax Withholding and Estimated Tax
- Publication 5307, Tax Reform: Basics for Individuals and Families (PDF)