Retiree Tip of the Month

IRS Encourages “End of Summer Tax Checkup”

The IRS is strongly encouraging taxpayers to perform an “end of summer tax checkup”. This can help you avoid receiving unanticipated tax bills in the coming year. The agency emphasized that, if taxpayers did not adjust their withholding or make estimated payments, a significant number of taxpayers could find themselves in a position where they owed taxes. The IRS recommended that taxpayers use their Tax Withholding Estimator tool to help them align their tax payments with what they owe. This would allow them to avoid penalties and unnecessary stress during tax season.

Those who should exorcise the most caution out of anyone include: individuals employed in the gig economy, those who earn income that is not subject to withholding, and anyone with a “side hustle.” It is recommended that these individuals check the amount they pay, or the amount of tax they have withheld throughout the year, to bring the tax they pay closer to what is owed.

The IRS reminds taxpayers that conducting tax planning now can save them time and frustration in the future. Here’s some important info to keep in mind:

How the Process of Refunds Works

The federal tax system is pay-as-you-go. Taxpayers are required to make tax payments whenever they receive income or wages throughout the year. For a great number of people, their employer deducts taxes from their paychecks, which are then transferred to the IRS on their behalf. Some individuals, such as those who work in the gig economy, are required to make quarterly estimated tax payments throughout the year. A refund is typically issued when an excessive amount is withheld or paid throughout the course of the year.

Avoid Being Taken Off Guard By a Bill

On the other hand, a significant number of taxpayers wind up incurring estimated tax penalties as a result of underpaying their taxes throughout the year. While the amount of the penalty varies from person to person, it can be several hundred dollars for some. Modifying the amount of tax withheld from paychecks or the amount of estimated tax payments can be an effective way to avoid incurring penalties.

Self-employed individuals, including those who participate in the gig economy, those who hold more than one job, and people who have experienced significant life changes, such as a recent marriage or the birth of a child, are in particular need of this information. With all this in mind, the IRS encourages taxpayers to make use of the IRS Tax Withholding Estimator in order to assist them in better aligning their tax withholding or tax payments with what they owe. You can access this tool here. 

Tax Withholding Estimator

The IRS has developed a Tax Withholding Estimator to assist taxpayers in ensuring that their tax withholding or tax payments are in line with what they are obligated to pay. By using this tool on IRS.gov, individuals are able to determine the amount of federal income tax that they are required to pay throughout the year. For taxpayers to be able to use it, all that is required is a copy of their tax return for the year 2023, as well as pay stubs for all of their jobs or other income information, such as income from side jobs, self-employment, or investment income.

The Tax Withholding Estimator can help with:

• Estimating your federal income tax withholding
• Determining how a refund, take-home pay, or tax due is affected by withholding amounts
• Selecting an estimated withholding amount that is suitable for yourself and your family

In the event that a change in withholding is required upon completion, taxpayers are required to make the necessary adjustments to their withholding by submitting a new Form W-4 to their employer or pension provider. When necessary, they are also able to make adjustments to the quarterly estimated tax payments. Furthermore, the IRS reminds individuals to make use of the Tax Withholding Estimator in the event that there is a significant change in their life, such as:

• Any new employment or other paid work
• Major shift in one’s income
• Getting married
• Becoming a parent
• Buying a new house

Consult a Qualified Tax Professional

You can learn more by visiting the official IRS website and checking out their Tax Withholding Estimator tool. Remember that with tax-specific questions, you should consult a qualified tax advisor. However, we may be able to help you if you’re looking for methods to improve your financial retirement strategy, including lessening the impact of taxes on your savings. There are some tax-deferred and tax-free options out there that you may not have heard of. These options can protect more of your hard-earned savings–interested in learning more? Reach out to us.