Pay Your Taxes

The United States of America is a federal republic with separate federal, state, and local government(s) with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees.

Federal taxes are administered by the Internal Revenue Service (IRS). State taxes in North Carolina are collected by North Carolina Department of Revenue. The local taxes (usually property taxes) are collected at the county level.

Typically, your employer will retain a portion of your pay to use for paying your state and federal taxes. This is called a withholding. Upon commencement of your employment, you’ll typically fill out a form (IRS: W4) that helps determine how much tax will be withheld from each pay period. Being the head of household, being married, having children and other factors help make this determination.

Taxes on pay earned in a calendar year are due by the end of that same calendar year. If additional taxes are due, and not paid, by the end of the year, penalties and interest will be applied. This applies to both Federal and State income tax.

In addition to the W4 withholdings, there are other factors that can cause you to owe less tax. These are referred to as tax write-offs. Some of these are used to mathematically reduce the amount of income you earned, leading to less tax being owed. These are called deductions. Another class of tax advantages, ones that reduce the amount of tax owed directly, are called tax credits.

The process of submitting formal documentation showing the calculations of total taxes due is referred to as “filing a tax return.” Many Americans use third party vendors to do this paperwork for them (e.g. H&R Block, TaxAct, Jackson Hewitt). There are also many software tools available for completing and submitting the forms (TurboTax, etc.) Filing for the previous year must be submitted by April 15th.

A word of caution: if anything about your family’s financial situation is “complicated,” it is a good idea to seek the help of a tax professional.