The IRS has strongly urging citizens to do a tax checkup. This may help you steer clear of unexpected tax bills for next year. The agency underlined that a lot of taxpayers would find themselves in a situation wherein they owed taxes if they did not change their withholding or make anticipated payments. Using their Tax Withholding Estimator tool will help consumers match their tax payments to their owed amount, advised the IRS. This would help them to avoid penalties and needless worry during tax season.
Those who should exorcise the most caution out of everyone are those working in the gig economy, those whose income is not subject to withholding, and anyone having a “side hustle.” To get the tax they pay more in line with what is owed, these people should review the amount they pay or the amount of tax they have deducted over the year. The IRS reminds consumers that starting tax planning now will help them save time and aggravation down the road. Here are some salient facts to consider:
How the Process of Refunds Works
The federal tax system operates pay-as-you-go. Taxpayers must pay taxes each time they get income or wages all year long. Their company often takes taxes from their paychecks and forwards them to the IRS on their behalf. Some people, like those in the gig economy, have quarterly estimated tax obligations all year long. Usually, an excessive amount paid or deducted over the year results in a refund.
Avoid Being Taken Off Guard By a Bill
On the other hand, underpaying their taxes all year long causes many taxpayers to pay expected tax penalties. Although each person’s penalty is different, for some, it might be several hundred dollars. One good approach to prevent paying penalties is to change the amount of estimated tax payments or tax deducted from paychecks.
Particularly in need of this material are self-employed people—including those engaged in the gig economy, those who hold multiple jobs, those who have gone through major life events like a recent marriage or childbirth. Keeping all this in mind, the IRS advises taxpayers to use the IRS Tax Withholding Estimator to help them better match their tax withholding or tax payments with what they owe. You can access this tool here.
Tax Withholding Estimator
The Tax Withholding Estimator developed by the IRS helps consumers make sure their tax withholding or tax payments match their obligation. Those who use this tool on IRS.gov can find out how much in federal income tax they owe throughout the year. All that is needed for taxpayers to be able to use it is a copy of their 2023 tax return together with pay stubs for every job or other source of income—including income from side businesses, self-employment, or investment income.
The Tax Withholding Estimator can help with:
- 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
Should a change in withholding prove necessary upon completion, taxpayers must make the required adjustments to their withholding by sending a fresh Form W-4 to their pension provider or employer. When called for, they can also change the quarterly projected tax payments. The IRS further advises the use of the Tax Withholding Estimator should one experience a major life change, such as:
- Any new employment or other paid work
- Major shift in one’s income
- Getting married
- Becoming a parent
- Buying a new house
Consult a Qualified Tax Professional
Checking out their Tax Withholding Estimator tool on the official IRS website will help you to learn more. Remember that you should consult a qualified tax advisor for questions specific to your taxes. If you’re looking for ways to enhance your financial retirement strategy, though, including lessening the effect of taxes on your savings, we may be able to assist you. You might not have known about some of the tax-deferred and tax-free options available. These choices can guard more of your hard-earned money; would you be interested in learning more? Get in touch with us.
