Below is a high level view of federal income taxes, not meant to be a guide. Contact your CPA for your specific questions/concerns.
I’ve recently scrolled through Publication 505 – Tax Withholding and Estimated Tax (2023), found here. It spans about 115 pages and clocks in at over 33,000 words. However, the table of contents along the left side of the screen makes finding what your looking for rather easy.
Federal income tax is a pay-as-you-go tax. To do this there are two methods: Withholding and Estimated tax.
Withholding
Withholding is the typical method a W2 employee would experience. Each pay period the employer withholds this amount from your paycheck and pays the IRS on the employees behalf. This is done so an employee is not subject to a large lump sum tax expense at the end of the year.
Estimated Tax
Estimated tax is for those outside of the usual W2, recurring pay system. This method is typically for those who freelance, contract, or run their own business. Each quarter taxpayers must file an estimated amount. This estimate covers income tax and possibly self-employment and alternative minimum tax.
This, understandably, extremely dense publication covers topics such as:
- Yearly Updates
- Definitions
- How to calculate withholdings
- When your withholdings would change
- Withholdings estimator
- Tax credits
- Employer rules for withholdings
- Penalties
- What to do if you choose not to withhold
- Worksheets to determine how much to withhold
- Who must pay estimated tax
- Special rules for farmers, fishermen, and some higher income earners
- Estimated tax worksheet (found in instructions of Form 1040-ES)
- Calendar for when to pay
- Installment payment rules
- Rules for those whose income isn’t even through the year
- How to pay
- Tax rate schedules
- Sources for tax help
- Tools for filing
- Access to your tax transcripts
- Check the status of your refund