The Benefits of Using the Tax Withholding Estimator for Workers, Retirees, and the Self-Employed
The Internal Revenue Service has an online tool to help you prepare for the 2024 filing season: the Tax Withholding Estimator. This valuable tool, also available in Spanish, assists you in adjusting your 2023 paycheck withholdings, potentially putting more cash in your pocket or helping you avoid a tax bill for 2023.
The Tax Withholding Estimator is designed for workers, retirees, and the self-employed. It provides a step-by-step guide to effectively tailor the amount of income tax withheld from wages, pensions, and other income. It comes in especially handy after major life events, such as marriage, divorce, home purchases, welcoming a new child, or experiencing a significant change in income.
Benefits of using the Estimator
For employees, withholding refers to the federal income tax deducted from your paycheck. The Tax Withholding Estimator can help you determine if you should complete a new Form W-4 and submit it to your employer. By checking your withholding, you can:
- Ensure the right amount of tax is withheld, preventing unexpected tax bills or penalties at tax time.
- Decide whether to have less tax withheld, increasing your take-home pay and reducing refunds at tax time.
What records are needed?
Accuracy matters! The Tax Withholding Estimator’s results depend on the information you enter. To prepare, the IRS recommends you gather:
- Your most recent pay statements (and your spouse’s, if married)
- Information on other sources of income
- Your most recent income tax return
Withholding or estimated payments?
Generally, income taxes must be paid as you earn or receive income throughout the year, either through withholding or estimated tax payments. If your salary or pension withholding isn’t enough or if you have other types of income (e.g., interest, dividends, alimony, self-employment income, capital gains, prizes, or awards), you may need to make estimated tax payments.
In 2023, if you receive over $600 in income from third-party settlement organizations, such as popular payment apps, you may get a Form 1099-K. The IRS’s online Interactive Tax Assistant can help you determine if you need to pay estimated taxes. Remember, good recordkeeping is essential!
For those with complex tax situations, the IRS suggests using Publication 505, Tax Withholding and Estimated Tax. This applies to taxpayers who owe alternative minimum tax, certain other taxes, or have long-term capital gains or qualified dividends.
Need additional help? Check out these resources:
- Tax Withholding Estimator FAQs
- Paycheck Checkup
- FS-2023-12, IRS offers several payment options, including help for those struggling to pay
In summary, the Tax Withholding Estimator is a valuable tool to help you prepare for the upcoming tax season. Make sure you’re ready by taking advantage of this helpful resource!
***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**