Individuals whose income consists solely of wages from employment generally will have sufficient income tax withholding every year to pay all or most of their federal and state income tax liabilities by the time their tax returns are filed. However, the system of paying income taxes is not as simple for individuals who earn significant income from other sources, such as self-employed individuals. Because taxes generally are not withheld from other types of income, the IRS requires these individuals make payments throughout the year based on an estimate of the tax they will owe, so that when their returns are filed, they do not have large balances to pay. It is important that taxpayers understand and comply with these estimated tax requirements, or else they will face substantial penalties.
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