In the U.S., the federal income tax is a pay as you go system. Employers typically withhold tax from workers’ wages. But there are other reasons taxpayers may want to have taxes withheld from other income sources, including, pensions, bonuses, commissions and gambling winnings.
Some people do not pay tax through withholding. For instance, various types of small business owners, including a one-person business (self-employed) pay estimated tax. In addition, those who earn income such as dividends, interest, capital gains, rent, and royalties are usually required to make estimated tax payments.
Life events that may require a mid-year adjustment in withholding or estimated tax payments
Each year, because of life events like changes to household income or family size, some people get a larger refund than they expect while others find they owe more tax. To prevent a tax-time surprise, the IRS offers these tips:
1 | Review how a new job or change in employment will impact your withholding
When starting a new job, an employee must fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from regular pay, bonuses, commissions and vacation allowances. The IRS Withholding Calculator tool on IRS.gov is easy for taxpayers to use to figure how much tax to withhold to avoid surprises.
2 | Review how a change in business income may impact your estimated tax
People who have income not subject to withholding may need to pay estimated tax. Those expecting to owe $1,000 or more than taxes withheld from their wages may also need to make estimated tax payments to avoid penalties. The worksheet in Form 1040-ES, Estimated Tax for Individuals, helps to figure the tax.
3 | Review how a life event may change your withholding or estimated tax
A change in marital status, the birth of a child or the purchase of a new home can change the amount of taxes a taxpayer owes. The Managing Your Taxes After a Life Event page on IRS.gov provides resources to explain the tax impact of these changes. In most cases, an employee can submit a new Form W–4 to their employer anytime.
Related IRS Resources
- Publication 505, Tax Withholding and Estimated Tax
- IRS Tax Map, Withholding of Tax
- Topic 753, Form W-4 – Employee’s Withholding Allowance Certificate