Hello, Raclimin!
This depends on various factors and how your income is earned. As an employee, taxes are typically withheld from your paycheck by your employer. The withheld money is sent to the IRS and likely your state government too. This allows you to pay income taxes incrementally.
However, if you are self-employed or have additional income besides wages, you may need to pay estimated quarterly taxes. You may owe estimated taxes on income not subject to withholding such as: interest income, dividend income, capital gains from selling stocks or other assets, business earnings, or taxable alimony.
If you have not paid enough income taxes through withholding or quarterly estimated payments by the time you file your tax return, you may have to pay a penalty for underpaying your taxes. The IRS requires you to pay taxes throughout the year as you earn income, either through withholding from your paycheck or by making quarterly estimated tax payments.
- If you owe less than $1,000 in taxes after subtracting your withholding, you don't need to make estimated payments.
- If your withholding covers at least 90% of your total tax owed, you don't need to make estimated payments.
- If your withholding covers 100% of your previous year's tax (110% if your AGI was over $150k/$75k if married filing separately), you don't need to make estimated payments.
If you answered no, to all of the above, you must make estimated payments to avoid a penalty. Your total payments must satisfy one of the requirements in 1, 2. or 3 above.
Your Form W-4 you fill out through your employer is what determines how much will be withheld from your paycheck for federal income tax. The form collects details that your employer doesn't already know, that will impact your amount of tax liability,, such as your filing status, tax deductions, multiple jobs and other types of income you may have. This information, along with the IRS withholding tables, will determine the appropriate tax withholding amount.
The amount withheld reduces your take-home pay, so it's important to fill out Form W-4 accurately. Doing so will help maximize your take-home pay, minimize your potential tax refund, or minimize any amount you might owe. Many people only submit a W-4 when starting a new job and don't update it until they change employers. However, you should submit a new Form W-4 to your current employer whenever you have major tax situation changes. Without an updated form, your employer won't adjust withholding to account for changes that could affect your tax liability.
To adjust your withholdings from your paycheck you can obtain a form W-4 from your employer’s website, HR department or from the IRS website.
- Step 1-Fill in your personal information like name, SSN, address, and filing status. Skip to Step 4 if exempt from withholding.
- Step 2-Use the IRS Withholding Calculator if you have multiple jobs or a working spouse. It will help complete Steps 3-4.
- Step 3-Enter the number of dependents you will be claiming on your tax return. You can claim a lower or higher number here, if you want to. Claiming fewer allowances/dependents on your form W-4 will lead to more federal tax being withheld from your paychecks and a smaller take-home pay. This can result in a larger tax refund or smaller balance due. Claiming too many allowances can mean not enough tax is withheld during the year and hence a smaller refund or larger balance due.
- Step 4- This section is where you can report other income, deductions, or adjustments to your withholdings, including specific additional amounts to withhold from your paycheck.
- Step 5- You will sign and date the form and return it to your employer.
See these links for additional information and resources:
Please feel free to reach backout with any additional questions or concerns you might have!
Have an amazing rest of your day and best of luck moving forward!
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Terri Lynn
