Imagine it’s tax filing season. You’re dreading figuring out your tax liability this year, because in the last few years you’ve been earning sporadic capital gains and dividends that sometimes have led to a surprise tax bill at year-end. This year, though, is the first year that pay-as-you-earn (PAYE) tax collection has been expanded beyond wage income to cover additional types of earnings, causing your capital gains and dividends to be withheld at source, as well as some key deductions and credits, so that you don’t have to retrospectively reconcile your income, withholding, and deductions—all you need to do is fill out and file your Form 1040. There is no big bill, because withholding at source was applied on all of your income, and because it accounted in advance for the standard deduction and for the deduction you knew you would claim for student loan interest.
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