The IRS has been strongly encouraging taxpayers to conduct a tax “checkup.” This may help you avoid receiving unexpected tax bills in the coming year. The agency emphasized that if taxpayers did not adjust their withholding or make estimated payments, a significant number of taxpayers could end up owing taxes. The IRS suggested that taxpayers use the Tax Withholding Estimator tool to help them match their tax payments to what they owe. This would prevent them from incurring penalties and experiencing unnecessary stress during tax season.
Individuals working in the gig economy, those earning income that is not subject to withholding taxes, and anyone with a “side hustle” should exercise the most caution. It is recommended that these individuals check the amount they pay or the amount of tax they have withheld throughout the year to ensure that the tax they pay is in line with what is owed. The IRS reminds taxpayers that doing their tax planning now will save them time and frustration in the future. Here’s some important information to remember:
How Refunds Work
The federal taxation system is pay-as-you-go. Taxpayers are required to pay taxes whenever they receive income or wages throughout the year. For many people, their employer deducts taxes from their paychecks, which are then sent to the IRS on their behalf. Some people, such as those who work in the gig economy, are required to pay quarterly estimated taxes throughout the year. A refund is usually issued when an excessive amount is withheld or paid over the course of a year.
Avoid Being Caught Off Guard by a Bill
On the other hand, many taxpayers face estimated tax penalties as a result of underpaying their taxes throughout the year. The penalty varies depending on the individual, but it can be several hundred dollars for some. Modifying the amount of tax withheld from paychecks or estimated tax payments can help you avoid penalties.
Self-employed people, including those who work in the gig economy, those who have multiple jobs, and those who have gone through significant life changes, such as a recent marriage or childbirth, are especially in need of this information. With all of this in mind, the IRS encourages taxpayers to use the IRS Tax Withholding Estimator during the summer months to help them better align their tax withholding or payments with what they owe.
Tax Withholding Estimator
The IRS has created a Tax Withholding Estimator to help taxpayers ensure that their tax withholding or payments are in accordance with what they are required to pay. Individuals can use this tool to determine how much federal income tax they are required to pay throughout the year. To use it, taxpayers must provide a copy of their tax return for the year 2023, as well as pay stubs for all jobs or other income information, such as income from side jobs, self-employment, or investment earnings.
The Tax Withholding Estimator Can Help With:
- Estimating your federal income tax withholding
- Determining how withholding amounts affect a refund, take-home pay, or tax due
- Choosing an estimated withholding amount that works for you and your family
If a change in withholding is required following completion, taxpayers must make the necessary adjustments by submitting a new Form W-4 to their employer or pension provider. They can also adjust quarterly estimated tax payments as needed. Furthermore, the IRS reminds individuals to use the Tax Withholding Estimator in the event of a significant change in their life, such as:
- Any new jobs or other paid work
- A significant shift in income
- Getting married
- Become a parent
- Buying a new home
Consult With a Qualified Tax Professional
You can learn more by visiting the IRS’s official website and using their Tax Withholding Estimator tool. Remember that if you have tax-related questions, you should consult with a qualified tax advisor. However, we can assist you if you’re looking for ways to improve your financial retirement strategy, such as reducing the impact of taxes on your savings. There are some tax-deferred and tax-free options that you may not be aware of. Are you interested in learning more about how these options can help you protect your hard-earned savings? Reach out to us.