W-2 Job

• If you work for an employer and receive a W-2 wage statement at the end of the year, you must fill out paperwork when you begin work for the company that lists your withholding allowances. The form you fill out is an IRS W-4. Your employer uses information you provide on this form to determine the amount of income tax that should be taken from your check. If you claim "Exempt" on this form, your employer will only withhold Social Security and Medicare taxes from your check.
  
  

1099 Income

• If you receive payments for contract services, you are self-employed and may receive a 1099 at the end of the year that summarizes your compensation. Workers receiving payments under this arrangement do not have any taxes withheld from payments and are responsible for paying income and self-employment taxes on the income at the end of the year. Your employer did not take taxes out of your check because he is not technically your employer --- you are, and therefore he is not required to withhold taxes from your pay.
  
  

Unemployment

• When you open a claim for unemployment compensation, the application you fill out asks if you want federal income tax withheld from your checks. You can make an election to have a percentage of your payment deducted for income tax and sent to the IRS on your behalf. Alternatively, you can elect to waive the deduction. If you waive the withholding, no federal taxes are taken from your check.
  
  

Remedies

• If your income is from a W-2 job, you can change your withholding allowances at any time by providing a new W-4 to your employer's payroll department (see Resources to access the IRS withholding calculator if you're unsure how much to claim on your W-4 form). If your income is unemployment compensation, change your election with your unemployment office to have the federal taxes deducted from your payments. If you're self-employed or receive 1099 income, you can't elect to have taxes withheld from your pay, but you can make quarterly estimated tax payments to offset taxes on your net income at the end of the year. Use IRS Form 1040ES to calculate the amount you should pay each quarter (see Resources).