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Life in the USA Personal Finance Taxes
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Withholding and Estimated Tax
In the United States, income tax is paid on a “pay-as-you-go” basis. If you work for someone else, a certain portion of your pay will be subject to “withholding,” and given to the federal and state governments. There will also be deductions for F.I.C.A. (social security tax) and perhaps unemployment insurance. The remainder is referred to as “take-home pay”. For a wage earner who is “on the books,” take home pay can be distressingly small. If you work for yourself, you will be expected to make estimated tax payments in advance to the IRS and state tax department every three months. If you don't make these advanced, estimated tax payments, you will be subject to a penalty, even if you pay all the tax due at the end of the year.
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