Employees, self-employed individuals, and retirees need to make sure they have enough money withheld from their pay to cover the amount of tax they owe when their tax return is filed. If a taxpayer has not withheld enough money throughout the year, they could be subject to penalties on the underpayment of tax. The IRS has a Tax Withholding Estimator tool for taxpayers to check their withholding and make sure employers are taking enough money out of each check.
Taxpayers can follow these steps for using the tool. The results will include a recommendation on whether they have enough withheld or if they should consider filing a new W-4, Employee’s Withholding Allowance Certificate with their employer. Do not file the W-4 with the IRS.
Taxpayers will need a copy of their most recently filed tax return as well as their most recent paystub. They can then find the tool on the main page of the IRS.gov website. Before starting, we recommend reading all the information on the page before clicking the blue button that says Tax Withholding Estimator.
You will be prompted to answer a series of questions related to their tax situation. This includes filing status, number of dependents, number of jobs held, frequency of pay, and more. Once each section is complete, they can click the blue “Next” button to take them to the next section of questions.
Once all of the questions have been answered, review the results. The results include expected tax withholding for the year for their current job(s), anticipated tax liability, whether they owe, have a zero balance, or are in a refund position. They can also choose the desired amount of refund they want, and the tool will then tell them exactly how much needs to be withheld from each paycheck to receive that refund amount. This will then help employees determine if a new W-4 form needs to be filed with their employer. If it is decided that a new W-4 does need to be filed, we recommended checking with your employer to see if they have an automated system for making these changes.
If you have any questions or would rather the MOD Ventures team calculate for you, please do not hesitate to contact us.