Get Ready for Taxes:
For many, time is running out to avoid a tax-time surprise; Check withholding, make estimated payments now
Many taxpayers, at risk for having too little tax withheld from their pay, can avoid a surprise year-end tax bill by quickly updating the withholding form they give to their employer, according to the Internal Revenue Service.
Although the tax reform law, enacted last December, lowered tax rates for most taxpayers, it also nearly doubled the standard deduction and limited or discontinued many deductions, among other changes. As a result, taxpayers who itemized in the past who now choose to take advantage of the increased standard deduction, as well as two-wage-earner households, employees with non-wage sources of income and those with complex tax situations, are at most risk of having too little tax withheld from their pay. This is especially true if they didn’t update their withholding earlier this year.
With employees typically only having one or two pay dates left this year, time is running out to remedy any shortfall through increased withholding. In many cases, affected employees may need to ask their employers to withhold an extra flat-dollar amount from their pay to cover any possible shortfall.
This is the fourth in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS has updated its Get Ready page with steps to take now for the 2019 tax filing season. Among other things, the page includes new Publication 5307, Tax Reform Basics for Individuals and Families, designed to help taxpayers learn about how this legislation may affect the 2018 return they file next year.
Due to tax reform, many employees’ withholding decreased in early 2018, giving them more money in their paychecks this year. As a result, many may receive a smaller refund or even owe tax, especially if they did not adjust their withholding after the withholding tables changed.
Ever since the revised withholding tables went into effect, the IRS has been urging employees to perform a Paycheck Checkup. The fastest and easiest way to do that is to use the Withholding Calculator, available on IRS.gov.
To use this tool most effectively, have a copy of last year’s tax return handy, as well as recent paystubs. After answering the Withholding Calculator questions, the tool will recommend the number of allowances to claim on the Form W-4, Employee’s Withholding Allowance Certificate, a form an employee gives to their employer. With few pay dates left this year for the typical employee, the Withholding Calculator will often recommend that the employee also have an additional flat-dollar amount withheld from their pay each pay period.
The IRS urges employees to fill out a new Form W-4 and give it to their employer as soon as possible. If it’s already too late to do that, another option is to make an estimated tax payment to the IRS. Estimated tax payments are also a good idea for anyone who receives income not subject to withholding, such as interest, dividends, self-employment, capital gains, prizes and awards.
Form 1040-ES, Estimated Tax for Individuals, available on IRS.gov, is designed to help taxpayers figure these payments simply and accurately. For more information on making estimated or additional tax payments, visit the Pay As You Go, So You Won’t Owe page.