IRS rolled out a new tool to prevent nasty refund surprises at tax time
This tax season a bunch of stories hit the press full of taxpayer grumbling about bigger bills and smaller refunds. If this happened to you, that might be a cue to adjust the amount that your employer (or you, if you’re self-employed) is withholding from your paycheck.
The IRS just launched a mobile-friendly withholding calculator tool: Paycheck Checkup. It’s a good way to check if your employer is withholding enough to absorb your tax hit—and adjust your withholding amount, if necessary.
Other trigger events that might make you want to examine your withholding
Many life changes can affect the amount you should be withholding:
• Marriage or divorce
• Working a second job
• Running a side business/receiving any kind of income with isn’t normally subjected to withholding (self-employment, gigging for Lyft or similar “sharing economy” outfit, or some rental activities, for example)
Three ways to adjust your withholding
If spending a few minutes with Paycheck Checkup shows there might be a tax-time wallop in store for you, the IRS recommends three ways to make adjustments:
• Change the withholding allowances on Form W-4.
Reducing the number of allowances on your Form W-4 will increase the amount employers withhold from your check. Downside: smaller check. Upside: paying more upfront means no unwelcome surprises come tax time.
• Have an extra flat-dollar amount withheld from each paycheck.
You can also submit a new Form W-4 to your employer’s payroll folks, requesting that a specific, flat amount is withheld over and above current withholding. This gives you some control over how evenly withholding happens throughout the year and, as in the example above, minimizes the chance of your being penalized when you were looking for a refund instead.
• Make estimated tax payments throughout the year.
Making quarterly estimated payments ahead of time is yet another way to meet your tax burden. There are currently two opportunities to do that before next tax time: September 16, 2019, and January 15, 2020. The fastest and easiest way to make estimated tax payments is electronically using Direct Pay or Electronic Federal Tax Payment System.
Taxpayers can visit IRS.gov for other payment options or pay a visit to their local tax professional, who can quickly simplify the menu of choices with up-to-date knowledge.