Now that tax season is over, it’s time to get the new tax year off to a good start by checking your federal income tax withholding. Taxpayers can do this by using the Tax Withholding Estimator on IRS.gov. Let’s take a look at why using this valuable online tool is a good idea:
The Tax Withholding Estimator helps employees avoid having too much or too little tax withheld from their wages. It is also useful for self-employed individuals who have wage income or estimated tax payments that they need to make to avoid unexpected tax bills when filing their annual returns. Having too little withheld can result in a tax bill or even a penalty at tax time; having too much withheld results in less money in their pocket. In other words, the estimator can be used to help taxpayers get to a balance of zero or a desired refund amount.
The Tax Withholding Estimator also helps taxpayers figure out whether they need to complete a new Form W-4, Employee’s Withholding Allowance Certificate and submit it to their employer or make an additional or estimated tax payment to the IRS.
How it Works
The Tax Withholding Estimator asks taxpayers to estimate:
The online tool does not ask for personally identifiable information, such as a name, Social Security number, address, and bank account numbers. The IRS doesn’t save or record the information entered in the Estimator.
Gather Tax Documents
Before using the Estimator, it can be helpful for taxpayers to gather applicable income documents, including:
compensation, dividends, distributions from a pension, annuity or retirement plan
These documents are not needed to use the estimator but having them handy will help taxpayers estimate 2022 income and answer other questions asked during the process.
Taxpayers should be aware that the results of the Tax Withholding Estimator will only be as accurate as the information entered by the taxpayer. It should also be noted that individuals with only pension income should not use the Estimator. Those with wage income can account for current or future pension income. People with more complex tax situations, including those who owe alternative minimum tax or certain other taxes and people with long-term capital gains or qualified dividends, are advised to consult with a tax professional.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.