If you earn an income throughout the year, you may need to pay taxes by the tax filing deadline of the following year. This year, most taxpayers will need to file by April 15. To avoid paying one large bill in April, the taxes are often split into multiple payments throughout the year, either through federal withholding or estimated tax payments. The difference between the two can often be confusing, so this article is here to help you distinguish between the two:
Federal Withholding is when employers withhold federal tax payments from each paycheck based on information you provided in a Form W-4.
If you're only using a Form W-2 to report your income, you likely won’t need to report estimated payments.
Estimated Tax Payments:
In situations where you have additional forms of income and expect to owe tax of $1,000 or more when your federal return is filed, you may need to make estimated tax payments throughout the year. This may apply to you if you were a sole proprietor, partner, self-employed or S Corporation shareholder.
Note: Double-check that you are not confusing this with Box 2 from your W-2: Federal Income Taxes Withheld, as this could throw off your total amount of federal income tax that has been withheld.