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Get ready to take the guesswork out of paycheck withholding

Paycheck Check Up

The tax filing season is quickly approaching. With that in mind, taxpayers should remember there’s still time to make an estimated or additional tax payment to ensure their tax withholding is still accurate.

Those who need to make an estimated tax payment for 2019 should remember that the fourth quarter payment is due Wednesday, January 15, 2020.

These taxpayers will want to check to see if their 2019 federal income tax withholding will unexpectedly fall short of their tax liability for the year. They can check this by using the Tax Withholding Estimator on IRS.gov.

All taxpayers can use the results from the Tax Withholding Estimator to determine if they should:

This tool helps employees avoid having too much or too little tax withheld from their wages. It also helps those working for themselves make accurate estimated tax payments. Having too little withheld can result in an unexpected tax bill or even a penalty at tax time in 2020. Having too much withheld results in less money in their pocket.

The Tax Withholding Estimator asks taxpayers to estimate:

  • Their 2019 income.
  • The number of children to be claimed for the Child Tax Credit and Earned Income Tax Credit.
  • Other items that will affect their 2019 taxes.

The IRS Withholding Estimator 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.

Before using the Tax Withholding Estimator, taxpayers should gather their most recent pay stubs and income documents from all sources. They should gather documents related to pensions, annuities, Social Security benefits and self-employment income. They should also have a copy of their 2018 federal tax return. This will help estimate 2019 income and answer other questions asked during the process.

If a taxpayer follows the recommendations at the end of the Tax Withholding Estimator and changes their withholding for 2019, they should recheck their withholding at the start of 2020. A withholding change made in 2019 may have a different full-year impact in 2020. So, if a taxpayer does not file a new Form W-4 for 2020, their withholding might be higher or lower than they intend.

Taxpayers should remember that the Tax Withholding Estimator’s results will only be as accurate as the information provided. People with more complex tax situations should 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.

Taxpayers can follow these three steps to use new Tax Withholding Estimator

3 Tax Steps

All taxpayers should use the new Tax Withholding Estimator to do a Paycheck Checkup. This tool helps people make sure their employers are taking out the right amount of tax from the employee’s paychecks. The money withheld from an employee’s paychecks throughout the year should cover the amount of tax they owe.

Taxpayers who haven’t yet checked their withholding can follow these simple steps for using the estimator. Results will include a recommendation of whether the taxpayer should consider submitting a new Form W-4, Employee’s Withholding Allowance Certificate, to any of their employers.

Step 1: Gather documents.
Before beginning, taxpayers should have a copy of their most recent pay stub and tax return. Taxpayers should go to the main Tax Withholding Estimator page on IRS.gov. Once there, they should carefully read all information and click the blue Tax Withholding Estimator button.

Step 2: Answer the questions.
Users will answer a series of questions about their specific tax situation. When they complete each section, they click the blue “Next” button that takes them to the next section.

Step 3: Review the results.
Taxpayers use the estimator’s results to determine if they need to complete a new Form W-4, which they submit to their employer, not to the IRS. The tool helps the user target a tax due amount close to zero or a refund amount.

Taxpayers have options for paying the tax they owe throughout the year

Paying Taxes

Taxpayers who need to pay more before tax time have a few different options on how they can do so. First, all employees should make sure their employers are withholding the correct amount of tax from their paychecks.

The best way for employees to check their withholding is to use the Withholding Calculator on IRS.gov. They can use the calculator to do a Paycheck Checkup. This lets the employee check to see if their employer is taking enough tax from their paycheck to cover the amount of tax they owe. After using the calculator, if necessary the employee can change the amount of tax their employer takes out of their paycheck. This will help employees avoid an unexpected result at tax time, such as a smaller refund.

Here are three ways that taxpayers can adjust their withholding:

Changing the withholding allowances on Form W-4.
When an employee reduces the number of allowances on their Form W-4, they increase the amount of income tax their employer withholds from their pay. On one hand, this mean a smaller paycheck. On the other hand, the employee is paying more tax upfront. This usually will mean less chance that they employee will see a smaller refund or larger tax bill at tax time.

Having an extra flat-dollar amount withheld from each paycheck.
Employees whose employers are already withholding the least amount of allowances can simply add a specific amount to their withholding. These employees can indicate this amount on a new Form W-4 and submit this to their employer or their employer’s payroll department. For example, an employee can tell their employer to withhold an extra $200 per paycheck. This will allow withholding to occur more evenly throughout the year.

Making estimated tax payments throughout the year.
Estimated payments are another way for taxpayers to pay what they owe in separate payments made throughout the year. For tax year 2019, remaining estimated tax payments are due from individual taxpayers on June 17 and Sept. 16, 2019, with the final being due Jan. 15, 2020. The fastest and easiest way to make estimated tax payments is electronically using Direct Pay or Electronic Federal Tax Payment System. Taxpayers can visit IRS.gov for other payment options.

IRS, Treasury unveil proposed W-4 design for 2020

WASHINGTON –Today the Internal Revenue Service issued a draft of the 2020 Form W-4, Employee’s Withholding Allowance Certificate (PDF), that will make accurate withholding easier for employees starting next year.

The revised form implements changes made following the 2017 Tax Cuts and Jobs Act, which made major revisions affecting taxpayer withholding. The redesigned Form W-4 no longer uses the concept of withholding allowances, which was previously tied to the amount of the personal exemption. Due to changes in the law, personal exemptions are currently not a central feature of the tax code.

“The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”

The IRS and Treasury collected extensive feedback over the past year while working closely with the payroll and tax community to develop a redesign that best serves taxpayers.

The IRS expects to release a near-final draft of the 2020 Form W-4 in mid-to-late July to give employers and payroll processors the tools they need to update systems before the final version of the form is released in November. To make additional improvements to this initial draft for 2020, the IRS is now accepting comments for 30 days.  To facilitate review of this form, IRS is also releasing FAQs about the new design.

The IRS anticipates the related instructions for employers will be released in the next few weeks for comment as well.

The IRS reminds taxpayers that this draft Form W-4 is not for current use, but is a draft of the form to be used starting in 2020. Employees who have submitted a Form W-4 in any year before 2020 will not be required to submit a new form merely because of the redesign. Employers can continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.

For 2019, taxpayers should continue using the current Form W-4 (PDF). The IRS also continues to encourage people to do a Paycheck Checkup as soon as possible to see if they are withholding the right amount of tax from their paychecks, particularly if they had too much or too little tax withheld when they filed their 2018 taxes earlier this year. People with major life changes, such as a marriage or a new child, should also check their withholding.

The IRS cannot respond individually to those who submit comments, but the agency does appreciate the feedback and will consider all comments received.

Proposed Layout: https://www.irs.gov/pub/irs-dft/fw4–dft.pdf

Tax bill this year? Check withholding soon, avoid another one next year

Tax bill this year? Check withholding soon, avoid another one next year

Taxpayers who owed additional tax when they filed their 2017 federal tax return earlier this year can avoid another unexpected tax bill next year by doing a “paycheck checkup” as soon as possible, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act, the tax reform legislation passed in December, made major changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the Child Tax Credit, limiting or discontinuing certain deductions and changing tax rates and brackets.

These far-reaching changes could have a big impact on the tax refund or balance due on the tax return people file next year. The IRS encourages every employee to do a “paycheck checkup” soon to ensure they have the correct amount of tax taken out of their pay.

Checking and adjusting withholding now can prevent an unexpected tax bill and penalties next year at tax time. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help.

The IRS encourages taxpayers to be proactive:

Do a ‘paycheck checkup’ soon

  • The Withholding Calculator can help taxpayers apply the new law to their specific financial situation and make an informed decision whether to change their withholding this year.
  • Adjust their withholding as soon as possible for an even, consistent amount of withholding throughout the rest of the year.
  • Taxpayers with more complex situations may need to use Publication 505. The publication is more effective for employees who owe self-employment tax, the alternative minimum tax or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties. Publication 505 includes worksheets and examples to guide taxpayers through their particular situations.

Underpayment penalties

  • To avoid paying the estimated tax penalty, taxpayers should ensure they have enough tax withheld from their paychecks and appropriate estimated tax payments. Ordinarily, taxpayers can avoid this penalty by paying at least 90 percent of their tax during the year.
  • If taxpayers expect to owe at least $1,000 in tax after subtracting withholding and refundable credits, they should make estimated tax payments.

Using the Withholding Calculator or Publication 505

  • Taxpayers should have their completed 2017 tax return handy to help estimate the amount of income, deductions, adjustments and credits to enter. They’ll also need their most recent pay stubs to help compute their withholding to date this year. Results from these tools depend on the accuracy of information a taxpayer provides.
  • Employees can use the results from the Withholding Calculator or Publication 505 to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and, if so, what information to include on the form.
  • The calculator may also be helpful to recipients of pension and annuity income. These recipients can change their withholding by filling out Form W-4P and giving it to their payer.
  • If a taxpayer’s personal circumstances change during the year, they should re-check their withholding.

Adjusting withholding

  • If an employee determines they should adjust their withholding, they should complete a new Form W-4 and submit it to their employer as soon as possible.
  • Some employers have an electronic method to update a Form W-4.
  • Taxpayers who change their 2018 withholding should recheck their withholding at the start of 2019. A mid-year withholding change in 2018 may have a different full-year impact in 2019, so if taxpayers don’t submit a new Form W-4 for 2019, their withholding might be higher or lower than intended.
  • If an employee has a change in personal circumstances that reduces the number of withholding allowances they can claim, they must submit a new Form W-4 within 10 days of the change.
  • The fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the Form W-4 means more tax will be withheld; entering a bigger number means less tax will be withheld.

Additional information

  • The Withholding Calculator does not request personally identifiable information such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. Taxpayers should be aware of tax scams, especially via email or phone and cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered in it.
  • The calculator and Publication 505 are not tax-planning tools. Taxpayers needing advice regarding the new tax law and personal situations should consult a trusted tax professional.

Taxpayers can get more information on these topics at www.irs.gov/withholding. For information on steps taxpayers can take now to get a jump on next year’s taxes, including how the new tax law may affect them, visit IRS.gov/getready.

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