The U.S. Federal income tax is set up on a pay as you go system: taxpayers pay tax on their income as it is earned, and penalties may apply if the tax is not paid in a timely manner. Many people also have to pay taxes when they file their tax returns, if they paid an inadequate amount throughout the year. The IRS provides several ways to pay taxes, both on an ongoing basis and during tax filing season.
Employees typically have taxes withheld from their paycheck on a per-check basis. Payroll withholding is typically the easiest way to pay your taxes, since you don't have to worry about making a payment yourself. Additionally, as your income changes your payroll withholding adjusts accordingly. This means that if you receive a salary bump that puts you in a higher tax bracket, your withholding will automatically change to reflect your new tax rate.
If you don't have payroll withholding available, or if you also have non-payroll income and don't want to increase your withholding to cover the additional tax, you can make estimated tax payments. Although they're termed "quarterly," the payments are actually due April 15, June 15, Sept. 15 and the following Jan. 15. You can make estimated payments as often as weekly if you prefer, but you must pay the appropriate amount by each due date to avoid underpayment penalties. This is especially true if your income is not consistent throughout the year. If you receive a substantial dividend in February, for example, your April 15 estimated payment should be higher than the others.
Pay With Your Return
Often even if you have payroll withholding or pay estimated taxes, you will still owe money when your return is completed. If you have paid in 90 percent of your total tax due, or 100 percent of the previous year's tax, you can generally avoid underpayment penalties. You can pay the remaining tax when you file your return; if you file a paper return, you include a check in the envelope with your return. For electronic filing, you can opt to have the tax automatically withdrawn from your checking or savings account when the IRS processes your return.
Pay After Filing
You can pay your tax at any point after your e-file your return, as long as the payment is sent or postmarked by the due date. You may have your taxes prepared and filed in early February, for example, to give yourself time to save the tax due in April. You can mail a check or money order with a Form 1040-V payment voucher, pay through the Electronic Federal Tax Payment System via a bank withdrawal, or pay using a credit or debit card.
If You Can't Pay
Sometimes the amount of tax due is more than a taxpayer can pay by the due date. While the IRS encourages you to pay as much of your tax as you can to avoid penalties and interest, they also offer payment options. You can request up to 120 days to pay your tax in full; there is no fee for this arrangement but interest will accrue. If you need more time, you can request an installment payment plan; you pay as much as you can up front and then a specific amount each month until the tax is paid. In some circumstances, the IRS might accept an offer in compromise, which allows you to settle the debt for less than what you owe.