Avoid having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
The Internal Revenue Service urged any taxpayer to use the IRS Tax Withholding Estimator to make sure they’re having the right amount of tax taken out of their pay during 2022. This online tool offers workers, self-employed individuals and retirees who have wage income a user-friendly resource for effectively tailoring the amount of income tax withheld from wages.
2021 refund too big? Too small? Surprise tax bill? If any of these apply, the Tax Withholding Estimator can help anyone make sure it doesn’t happen again by having the right amount of taxes taken out for 2022.
Benefits of using the Estimator
For employees, withholding is the amount of federal income tax taken out of their paycheck. Taxpayers can use the results from the Tax Withholding Estimator to determine if they should complete a new Form W-4 and submit it to their employer. For example, checking withholding can:
- Ensure the right amount of tax is withheld and prevent an unexpected tax bill or penalty at tax time and
- Determine whether to have less tax withheld up front, thereby boosting take-home pay and reducing any refund at tax time.
When should taxpayers use this tool?
The IRS recommends checking withholding at least once a year. For anyone who has just finished filling out their 2021 return, now is a particularly good time to do it. It’s also a good idea to use this tool right after a major life change, such as marriage, divorce, home purchase or the birth or adoption of a child.
What records are needed?
- The Tax Withholding Estimator’s results are only as accurate as the information entered. To help prepare, the IRS recommends that taxpayers gather:
- Their most recent pay statements and if married, for their spouse,
- Information for other sources of income and
- Their most recent income tax return, 2021, if possible.
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.
Here is a link to the online estimator - https://www.irs.gov/individuals/tax-withholding-estimator
If you need an additional consultation you can schedule one by following this link - https://calendly.com/karasseipeltax