Final answer:
Most people pay federal income tax through withholding from their income, while some pay through quarterly payments or by settling the total by April 15th. Tax credits are not a method of payment but can reduce tax liability.
Option '1' is the correct.
Step-by-step explanation:
Most people pay federal income tax primarily by having amounts withheld from their income throughout the year. Employers deduct taxes based on information provided by employees on their W-4 forms and send it directly to the federal government.
This process is known as tax withholding and is the most common method of paying taxes. It helps individuals avoid a large tax bill come April 15th, as they have paid incrementally throughout the year.
There are also other methods to settle taxes, such as filing quarterly tax payments, which self-employed individuals and those with other sources of income typically use. This method involves estimating the amount of tax owed and making payments every three months to the IRS. Another method is to pay the entire amount owed by April 15th. However, this is less common since it requires saving up for taxes independently rather than having them taken out of paychecks gradually.
Earning tax credits is not a method of payment, but a way to reduce the amount of tax one owes. Tax credits can directly decrease the tax liability, leading sometimes to a tax refund for amounts overpaid during the year. It's essential for taxpayers to understand these different methodologies to properly manage their finances and tax obligations.