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Pay as you go

The federal income tax system is a pay as you go tax. Restated, we have to pay taxes on the income as we earn it. There are two ways to pay as you go:

  • Employee - If you are an employee, your employer probably withholds income tax from your pay and pays the IRS in your name.
  • Self-employed - People who are in business for themselves usually pay estimated income taxes each quarter to the IRS. They also pay the total amount of the self-employment tax (Social Security and Medicare tax).