Check your Withholding and Estimated Tax Payments!

The U.S. tax system operates on a pay-as-you-go basis. This means that taxpayers need to pay most of their tax during the year, as the income is earned or received. Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, and/or estimated or additional tax payments. If they don’t, they may owe an estimated tax penalty when they file.

Tax calculations at both the federal and state levels change from year to year, and in some years change substantially. For this reason, all taxpayers should check their withholding from a recent paystub with the IRS’ online withholding calculator to see what their estimated tax will be. Doing this before the end of the tax year will help prevent an unexpected tax bill and possibly a penalty when the tax return is filed in the following year

In addition to salaried employees, other taxpayers who may need to make estimated tax payments include those who:

• have more than one job, but don’t have each employer withhold taxes
• are self-employed
• are independent contractors
• are representatives of a direct-sales or in-home-sales company
• participate in sharing economy activities where they are not working as employees.

Many states will not conform to federal changes or will make changes which only apply at the state level. Therefore, it would also be wise to check your state withholding to avoid surprises.