Tax Withholding, Tax Estimate Payment Overview - Publication 505

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive in-come during the year. There are two ways to pay as you go.

  • Tax Withholding via Form W-4, W-4V, W-4R. If you are an employee, your employer probably withholds income tax from  your pay. In addition, tax may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. The amount withheld is paid to the IRS in your name.
  • Use any of these W-4 tools to fill out or calculate your W-4 Form:
  • Fill out W-4 Form
  • Calculate your W4 Form based on your paycheck
  • Estimated tax payments. Instead of withholding taxes via one of the W4 forms, or don’t withhold enough in taxes you might have to pay estimated tax. Independent contractors, business owners etc. will generally pay tax estimates throughout the year.
    tax this way.
  • Make Tax Estimate payments directly at the IRS or State

You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rents, and royalties. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.