1.2 Payment of Tax

1. Tax Payments

A taxpayer typically makes "pre-payments" of tax during the year. These payments reduce the amount shown as "total tax" on the tax return and result in the calculation of tax due to the IRS or refund due to the taxpayer at the bottom of Form 1040.

2. Withholding of Taxes

An employer is required to withhold income taxes and FICA tax (Social Security and Medical tax) from employee compensation. This procedure is not necessary for independent contractors.

Form W-4: Employee's Withholding Allowance Certificate
(Income Tax Withholding Table)

Generally, compensation for withholding purposes include salaries, tips, bonuses, termination payments, vacation pay, and taxable fringe benefits. Taxes may also be withheld from certain other income including pensions and annuities, commissions, gambling winnings, unemployment compensation, and certain federal payments, such as social security.

3. Estimated Tax Payments

(1) $1,000 or more tax liability and
(2) Inadequate withholding - less than the smaller of:
a) 90% of current year's tax
b) 100% of prior Year's tax

1) Underpayment Penalty

2) Withholding Tax Treated as Estimated Tax Payments