In general, the federal income tax is a pay as you go tax. There are two ways to
pay as you go.
1.
Withholding. If you are an employee, your employer probably
withholds income tax from your pay. Tax may also be withheld from certain other
income In each case, the amount withheld is paid to the U.S. Treasury in your
name.
Your withholding agent may
choose to use an alternate procedure by asking you to fill out Form W-4 and the
Personal Allowances Worksheet (attached to Form W-4).
2. Estimated tax. If you do not pay your tax through
withholding, or do not pay enough tax that way, you might have to pay estimated
tax. People who are in business for themselves generally will have to pay their
tax this way. You may have to pay estimated tax if you receive income such as
dividends, interest, rent, and royalties. Estimated tax is used to pay not only
income tax, but self-employment tax and alternative minimum tax as well.
