If you owe taxes, it’s the result of your income exceeding your deductions and quarterly payments for the year.
Typically, employees that receive a W-2 at the end of the year will have withholdings automatically taken out of their paycheck and remitted to the government. These withholding amounts can later be subtracted from your year end tax liability, thus creating a refund position or reducing the amount you have to pay at the end of the year. Whenever an individual begins working with a new employer, they are prompted to complete a Form W-4 Employee’s Withholding Allowance Certificate which indicates your filing status and and the total number of allowances you will be claiming on your tax return. Whenever there has been a change in your filing status, you should check with your employer to update the Form W-4 for your new situation. This will help keep your withholding amounts in line with whatever your actual liability comes out to at year end.
On the other hand, if you are an independent contractor (1099-MISC recipient), the luxury of having your withholdings automatically taken care of by your employer does not exist. In this case, the independent contractor, technically the owner of their own business, is responsible for making their own quarterly estimates to cover their year end tax liability. If these estimates are not being made and the individual has been profitable from their contract work, they can expect a tax liability at the end of the year.
Taxes are one of the many aspects of being an American citizen. They are utilized by the federal and state government to finance various public services, such as transportation and infrastructure (think highway maintenance) and Social Security. Federal taxes are collected by the U.S. government, while state taxes are collected and used by the specific state in which you earn income and live. Basically, taxes play a major role in everyday functions of the country and communities we live in. Without them, many of the services the government provides wouldn’t exist.
The authority for the government to tax its citizens is contained in a complex series of Acts of Congress and legal decisions in case law. The disorganization of these acts and decisions creates challenges for those who would like to argue against the validity of the government's authority.
A number of hiccups occurred before the legal foundation for taxing personal income was strong enough to make it a permanent source of revenue for the U.S. government.
- The first U.S. income tax, enacted in 1862 to pay for the Civil War, was repealed 10 years later.
- In 1894, Congress tried to bring back income taxes, but a year later the Supreme Court ruled them unconstitutional in the landmark "Pollack" case.
- By 1913, Congress gave it another shot, and the states ratified the Sixteenth Amendment, which says the following: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration."