For most people, paying income tax happens automatically. You have a job and with every paycheck, some of the money gets held back by your employer and sent to the government. Since most people get paid a regular amount, these tax payments are the same every week or two weeks (or however often you get paid).
When you figure your taxes, you might end up with a refund, or you might end up having to pay a bit. But for the most part, there won't be any significant problems, because everything during the year took place on using a tortoise-beating-the-hare, slow-and-steady process. Some people have a different rhythm to their work lives. Instead of getting paid in regular installments from an employer, they have a more feast-or-famine existence which leads to fluctuating income. Maybe they own a small business that operates seasonally. Maybe they are a budding sports star who just got drafted and is looking at a big signing bonus. Or maybe they work freelance or on a contract basis, and see large payments when projects are done and have to live off those profits in leaner months. Whatever the particular reason, these situations can cause problems for figuring income taxes. Waiting until the end of the year and paying all at once can lead to large payments, and maybe even end up in delays that can induce penalties. For these people, there is an option called the annualized income installment method. Basically, this structure allows people to figure out their estimated tax based on an assumption of what they will earn for the year. They can then pay this in regular installments. It allows people with fluctuating income to pay their income taxes with less cost and hassle.Related or Semi-related Video
Finance: What's the Difference Between F...145 Views
Finance, a la Shmoop. [title page] What's the difference between federal
and state taxes? All right, well, when the U.S. came together a quarter of a
millennium ago, it was the United States. See, right there in the title you get a [founding fathers pictured]
sense of the tension. We started out as just states. These things. Then, we came together [individual states on map]
and created a central government that kind of sort of had control over each of [government tries to control states]
the states, and well, you can imagine that not everyone agreed about every rule.
Some states wanted murder to be an offense punishable by death, while other [protesters picket]
states wanted it to be, you know, legal. Well, okay maybe not legal, but they
had different ideas about how you should deal with murderers... i.e., not all of them [person pushed into lion pit]
should be thrown into the lion pit. Anyway, this was all well and good when it just
involved local laws and customs. Local customs dictated local laws, and then
local taxes could be allocated accordingly. So they could pay for things [local laws and taxes diagram]
like a bouncy house for the mayor. But what happened when there was a threat of [mayor in bounce house]
military invasion? Well, what if Georgia wanted to fight
them commies, but North Carolina didn't? Yeah, that didn't work out so well. So [states argue over military]
for some things, there has to be a federal law that supersedes state law
and federal taxes that support those laws, like military spending. If only those [federal laws and taxes diagram]
pacifists in Maryland didn't want to spend money on guns, well, then what would
the rest of the country do? Yep, let Maryland start speaking Russian or [Maryland hippies hang out]
Chinese as the preferred language while the rest of the nation just watched [Maryland conquered]
while sipping their tea? Or in the United States' case, you know, eating doughnuts? Yeah. [Americans eat doughnuts]
So, military spending protects the entire country, and those expenses come out of [military budget chart]
federal taxes. National highways? Federal. Border Patrol? Federal. Space travel? [federal and local laws/taxes demonstrated]
Federal. Schools? State. Libraries? State. Little country roads? State... local.
You know... Or even smaller in the form of county
taxes as we get littler and littler... yeah. So federal taxes pay for all the big
stuff--the things that we share as unified Americans no matter what state
we live in, while state taxes pay for stuff particular interest to our little
local state, wherever it is. You know, like DC taxes aren't going to be used to
build a fire department in Minnesota. Stuff like that. [fire department in Minnesota]
Besides, Washington has their, you know, own fires to put out. [newscaster speaks]
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