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Wiley Tax Preparer: A Guide to Form 1040 by The Tax Institute at H&R Block

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CHAPTER 36

Tax Payments and Refund Options

The federal income tax system works primarily on a pay-as-you-go basis. A taxpayer cannot simply wait until filing a return for the year to pay all that is owed. Instead, payments are made throughout the year. The primary means of payment for most taxpayers is withholding from wages, which is mandatory for most individuals. However, there are some voluntary payment options. Taxpayers who cannot satisfy their payment obligation through withholding must pay estimated taxes in four installments.

It is virtually impossible to know precisely what a taxpayer's tax liability will be for the year until completing the return. Thus, a tax payment may be made with the return itself if there is a balance due. If withholdings and estimated tax payment exceed the tax liability, a refund is paid to the taxpayer.

The failure to satisfy tax payment requirements can result in an underpayment penalty. In addition to the underpayment penalty, there are also penalties for late filing, late payments, and other reasons. Additionally, interest may be charged on any outstanding balance due.

Tax Payment and Withholding Information

A taxpayer should track any tax payments made for a particular year, which can include:

  • Withholding on wages and supplemental compensation (e.g., bonuses paid in property)
  • Mandatory 20% withholding on lump-sum distributions from qualified retirement plans and voluntary withholding on other payments from qualified plans and individual ...

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