Did you have to pay taxes this year? Here’s how to stop that.


Another indication that the IRS actually wants to help

If you had to pay income tax this year because you didn’t have enough withheld from your paycheck, the IRS won’t be offering any mulligans, but it is offering some help so you don’t wind up on the wrong side of the ledger next year.

The IRS is encouraging tax-paying workers, self-employed individuals, and retirees to start using the IRS Tax Withholding Estimator now to make certain they’re withholding the correct amount of tax from their pay for the rest of this tax year.

Then, a taxpayer can decide whether to reduce upfront tax withholding by increasing take-home pay, potentially reducing any tax refund at the end of the tax year. 

Using the new tool

If you want to use the estimator you should have three things ready:

  1. Paystubs for all jobs (your spouse, too)

  2. Other income info (side jobs, self-employment, investments, etc.)

  3. Most recent tax return

As far as what you can expect, the agency says you can count on these three things:

  1. Calculate your federal income tax withholding

  2. You can see how your refund, take-home pay, or tax due are affected by the amount of withholding

  3. Calculate your estimated withholding amount

For employed individuals, withholding refers to the federal income tax amount deducted from their paycheck. Taxpayers can use the Tax Withholding Estimator's findings to decide whether they should fill out a new Form W-4 and give it to their employer. This process can, for instance: 

  • Ensure the correct tax amount is withheld, preventing a surprise tax bill or penalty during tax season, and

  • Decide whether to reduce upfront tax withholding, increasing take-home pay and potentially reducing any tax refund at the end of the tax year. 

Use it once a year

When should taxpayers use this tool?

At least once a year, the IRS recommends taxpayers review their withholding. For anyone who’s recently completed their 2023 return or plans to file late, now is the perfect time to do that, as is if you’ve recently had a major life event change like having a child, buying a home, getting married or getting divorced. 

When using the withholding calculator taxpayers should consider all forms of income, including part-time work, side jobs or the sale of goods or services commonly reported on Form 1099-K.

While the Tax Withholding Estimator works for most taxpayers, people with more complex tax situations should instead use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe alternative minimum tax or certain other taxes, and people with long-term capital gains or qualified dividends. 

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