Taxpayers have been strongly encouraged by the IRS to do a tax checkup. This is because it can keep you from being taken off guard by tax bills in the next year. The agency made it clear that many people could end up owing taxes if they didn’t change their withholding or make estimated payments. The IRS recommended making use of their Tax Withholding Estimator tool. This could help ensure their tax payments align with how much they owe. This could hopefully keep them from being fined and costing extra time and effort.
Those who should be the most careful include those who work in the gig economy or have a “side hustle.” They should check how much tax they pay or how much was taken out of their paychecks throughout the year to ensure it meets what they owe. Taxpayers are reminded by the IRS that planning their taxes now can save them time and stress in the future. Some important things to remember include:
How the Refund Process Works
The tax system is pay-as-you-go. People have to pay taxes every time they receive a paycheck, all year round. Many workers have taxes taken out of their paychecks by their employers. Their employes then send those funds to the IRS on their behalf. However, people who work in the “gig economy,” for example, have to make expected tax payments every three months during the year. When an excessive amount is withdrawn or paid during the year, a refund is usually given.
Don’t Get Caught Off Guard From a Bill
In contrast, many taxpayers end up paying estimated tax fines because they didn’t pay enough taxes during the year. For some, the fine can be several hundred dollars. The exact amount is different for each person. One way to avoid penalties is to change the amount of tax taken out of paychecks or the amount of estimated tax payments.
Those who are self-employed, have more than one job, or have recently undergone big life changes need this information the most. Because of all of this, the IRS recommends making us of their Tax Withholding Estimator. This can help people get their tax payments or withholdings more aligned with what they owe.
Tax Withholding Estimator
The IRS made their Tax Withholding Estimator to help people ensure that the amount of tax they owe is reflected in their withholding or payments. People can use this tool on IRS.gov to figure out how much federal income tax they owe each month. For taxpayers to be able to use it, they require a few things. A copy of their tax return for the year 2023, and pay stubs for all of their jobs. That, or other income information, such as income from side jobs, self-employment, or investment income.
What the Tax Withholding Estimator can do:
- Estimating your federal income tax withholding
- Determining how a refund, take-home pay, or tax due is affected by withholding amounts
- Selecting an estimated withholding amount that is suitable for yourself and your family
If there is a need for a change in withholding after the work is done, taxpayers must make the appropriate changes by sending a new Form W-4 to their employer or pension provider. They can also change the amounts of the weekly estimated tax payments if they need to. Additionally, the IRS recommends using this tool if there is a big change in your life, such as:
- Any new employment or other paid work
- A major change in one’s income
- Getting married
- Becoming a parent
- Buying a new house
Consult a Licensed Tax Professional
You can find out more by going to the IRS website and using their Tax Withholding Estimator tool. Remember that if you have questions about taxes, you should consult a qualified tax advisor. However, we can help you if you want to improve your financial retirement strategy by offering you tools to grow your retirement income faster and protect more of it from the impact of taxes. These options can help you keep more of your hard-earned cash safe. Want to learn more? Get in touch with us.