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Freelancers, others with side jobs in the gig economy may benefit from new online tool

Tax Calculator

WASHINGTON — The Internal Revenue Service said today that the new Tax Withholding Estimator tool includes a feature designed to make it easier for employees who also receive self-employment income to accurately estimate the right amount of tax to have taken out of their pay.

The Tax Withholding Estimator is an expanded, mobile-friendly online tool that replaced the Withholding Calculator, which since 2001 had offered workers an online method for checking their withholding. The old calculator lacked features geared to self-employed individuals; the new Tax Withholding Estimator made changes to address this important group.

The new tool offers self-employed individuals, workers, retirees and other taxpayers a more dynamic and user-friendly way to calculate the amount of income tax they want to have withheld from either wages or pension payments. With only a third of the year remaining, the IRS encourages these taxpayers – and others – to use the tool to take a Paycheck Checkup as soon as possible to make sure they are having the right amount of tax withheld and avoid a surprise when they file next year.

Among other things, the tool allows a user to enter any self-employment income in addition to wages or pensions. The user is then alerted that they may qualify for several special tax benefits, including the self-employment health insurance deduction or the deduction for contributions to a Simplified Employee Pension (SEP), Savings Incentive Match Plans for Employees (SIMPLE) or other qualified retirement plan. The tool automatically calculates the self-employment tax and the self-employment tax deduction and incorporates these into its overall tax liability estimate.

The enhancement for self-employed people is just one of many new features offered by the Tax Withholding Estimator. Others include:

  • Plain language throughout to improve taxpayer understanding.
  • The ability to target either a tax due amount close to zero or a refund amount.
  • A new progress tracker to help a user know how much more information they need to enter.
  • The ability to go back and forth through the steps, correct previous entries and skip questions that don’t apply.
  • Tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Automatic calculation of the taxable portion of any Social Security benefits.

The new Tax Withholding Estimator also makes it easier to enter wages and withholding for each job held as well as jobs held by a spouse. Users can separately enter pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and spouse’s job, including incorporating any self-employment income entered into the tool.

The tool then automatically links to the appropriate withholding form. For employees, the link goes to Form W-4, Employee’s Withholding Allowance Certificate (PDF), which they can then fill out and submit to their employer. Similarly, for pension recipients, the link is to Form W-4P, Withholding Certificate for Pension or Annuity Payments, which is submitted to the pension payor. Remember, don’t send these forms to the IRS.

The new tool can help anyone, including self-employed people, doing tax planning for the last few months of the year. The IRS urges everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed earlier this year. It’s also a critical step for those who made withholding adjustments in 2018 or had a major life change, such as marriage, childbirth, adoption or buying a home.

Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two wage earner households, employees with non-wage sources of income and those with complex tax situations.

Anyone who changes their withholding in the middle or latter part of this year should do another Paycheck Checkup in January of 2020. That will help ensure that they have the right amount of tax withheld, on a full-year basis, for all of 2020.

The IRS sponsors a free two-hour webinar on the Tax Withholding Estimator. The webinar will take place on Thursday, September 19 at 2 p.m. Eastern time. To sign up, visit the webinars page on IRS.gov.

Taxpayers can use 2018 tax return to estimate 2019 withholding amount

Estimated Taxes

Millions of people have filed their 2018 tax return, making this a prime time to consider whether their tax situation came out as expected. If not, taxpayers can use their  finished 2018 return and the Tax Withholding Estimator to do a Paycheck Checkup ASAP and, if needed, adjust their withholding. Having their 2018 return handy can make it easier for taxpayers to estimate deductions, credits and other amounts for 2019. Performing a Paycheck Checkup is a good idea for anyone who:

  • Adjusted their withholding in 2018, especially those who did so later in the year.
  • Owed additional tax when they filed their tax return this year.
  • Had a refund that was larger or smaller than expected.
  • Had life changes such as marriage, childbirth, adoption, buying a home or income changes.

Since most people are affected by the Tax Cuts and Jobs Act all taxpayers should check their withholding. They should do a checkup even if they did one in 2018. This especially includes taxpayers who:

  • Have children and claim credits such as the Child Tax Credit.
  • Have older dependents, including children age 17 or older.
  • Experienced changes to itemized deductions this year.
  • Itemized deductions in the past.
  • Are a two-income family.
  • Have two or more jobs at the same time.
  • Only work part of the year.
  • Have high income or a complex tax return.

This Tax Withholding Estimator works for most taxpayers. Those with more complex situations may need to use Publication 505, Tax Withholding and Estimated Tax, instead of the Tax Withholding Estimator. This includes taxpayers who owe alternative minimum tax or certain other taxes, and people with long-term capital gains or qualified dividends.

Taxpayers can use the results from the Tax Withholding Estimator to see if they need to complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit it to their employer. In some instances, the calculator may recommend they have an additional flat-dollar amount withheld each pay period. Taxpayers give this form to their employer and do not send this form to the IRS.

More information:
Tax withholding: How to get it right
Publication 5307, Tax Reform Basics for Individuals and Families
Form 1040-ES, Estimated Taxes for Individuals

Share this tip on social media — #IRSTaxTip: Taxpayers can use 2018 tax return to estimate 2019 withholding amount. https://go.usa.gov/xVWtr

Tax planning should include a Paycheck Checkup

Paycheck CheckUp

Year-round tax planning is important for everyone. Just because a taxpayer already filed their tax return doesn’t mean they don’t need to think about taxes for the rest of the year. In fact, what they do now may affect any tax they might owe next year. It could also affect the refund they expect.

Since federal taxes operate on a pay-as-you-go basis, taxpayers need to pay most of their tax during the year as they earn the income. Taxpayers should make sure they’re having the correct amount of tax withheld from their paychecks. It’s a good idea for taxpayers to do a Paycheck Checkup for these reasons:

  • Having too little withheld could lead to a smaller than expected refund.
  • Having too little withheld could even lead to an unexpected tax bill.
  • Employees who have too much tax withheld will see less money in each paycheck. Having more money in each paycheck may be more helpful than getting a large refund when they file.

Taxpayers can use the IRS Tax Withholding Estimator to check their withholding. All taxpayers should use this tool to do a Paycheck Checkup ASAP if they haven’t already done so in 2019. Some taxpayers should do another Paycheck Checkup even if they already did one this year. This includes anyone whose personal or financial information changes due to a life event. Some life events that can affect withholding are:

  • Marriage
  • Having a baby
  • Getting a new job
  • Getting a raise at work

Taxpayers who want to change how much tax is withheld from their paycheck simply need to submit an updated Form W-4 to their employer.

The IRS has several digital tools taxpayers can use to stay updated on important tax information that may help with tax planning. In addition to visiting the IRS.gov website, they can download the IRS2Go app, watch IRS YouTube videos, and follow the IRS on Twitter and Instagram.

IRS reminds taxpayers to adjust tax withholding to pay the right tax amount

Payroll Taxes

WASHINGTON — With this year’s average tax refund around $2,700, the Internal Revenue Service reminds taxpayers they have options to control the amount of their take-home pay and the size of their tax refund by adjusting their tax withholding.

A Paycheck Checkup using the IRS Withholding Calculator can help taxpayers determine the right amount of tax they should have their employer withhold from their paychecks.

Taxes are pay-as-you-go. This means taxes must be paid as income is earned or received during the year, either through withholding or estimated tax payments. As of May 10, nearly 101.6 million taxpayers received federal tax refunds. With the average refund around $2,700, some taxpayers received a refund that was much larger than they expected, which means they paid too much tax throughout the year and took home less money in their paychecks.

To help taxpayers who want to change this amount, the Withholding Calculator will offer recommendations for adjusting withholding. A taxpayer who wants to increase the amount of their paychecks would pay less tax throughout the year by increasing the number of allowances on Form W-4. A taxpayer who would prefer a larger refund when they file would decrease their withholding allowances on Form W-4. Decreasing the number of allowances means paying more tax throughout the year and receiving a smaller paycheck.

A taxpayer’s unexpected tax surprise or larger-than-usual refund may be due to life changes such as getting married, having or adopting a child, or it may be from changes included in the Tax Cuts and Jobs Act (TCJA). The TCJA made changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets. These changes affected 2018 returns and are also in effect for 2019. It’s important to check withholding every year. Just because these changes didn’t affect a taxpayer last year doesn’t mean they won’t apply this year.

Sooner is better

Checking and adjusting tax withholding as early as possible is the best way to avoid having too little or too much tax withheld from paychecks. Too little withheld could result in an unexpected tax bill or penalty at tax time next year.

Taxpayers can help manage and adjust their tax withholding by using the IRS Withholding Calculator. It’s helpful if taxpayers have their completed 2018 tax return available when using the Withholding Calculator to estimate the amount of income, deductions, adjustments and credits to enter. Taxpayers also need their most recent pay stubs to compute their withholding so far this year. Based on the Withholding Calculator’s recommendations, taxpayers can then fill out and submit a new Form W-4 to their employer.

The Withholding Calculator does not request personally identifiable information, such as name, Social Security number, address or bank account number. The IRS does not save or record the information entered on the calculator.

Estimated taxes

Some workers are considered self-employed and are responsible for paying taxes directly to the IRS. Often, this includes people involved in the sharing economy. One way to pay taxes directly to the IRS is by making estimated tax payments during the year. The next deadline for tax year 2019 estimated taxes is June 17.

TCJA changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system.

The revised estimated tax package, Form 1040-ES, on IRS.gov is designed to help taxpayers figure these payments correctly. The package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount to pay.

Estimated tax penalty
Taxpayers should keep in mind that if not enough tax is paid through withholding and estimated tax payments, a penalty may be charged. A penalty may also be charged if estimated tax payments are late, even if a refund is due at tax time.

Pay electronically anytime

Taxpayers can pay their 2019 estimated tax payments electronically anytime before the final due date for the tax year. Most taxpayers make estimated tax payments in equal amounts by the four established due dates. The three remaining due dates for tax year 2019 estimated taxes are June 17, Sept. 16, and the final payment is due Jan. 15, 2020. Direct Pay and EFTPS are both free payment options, and taxpayers can schedule their payments in advance as well as receive email notifications about the payment. Visit IRS.gov/payments to schedule electronic payments online, by phone or via the IRS2go mobile app.

More information:

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.

Now’s the time to adjust 2019 withholding

Let your clients, employees and partners know, it’s a great time to use their 2018 tax returns for adjusting their tax withholding. 

Payroll Deductions

Checking and adjusting their tax withholding can help make sure they don’t owe more tax than they are expecting for 2019. At the same time, with the average refund more than $2,700, some of them may choose to reduce their withholding to have a larger paycheck and smaller refund.

Also let them know, they can use their 2018 returns and the IRS Withholding Calculator to do a paycheck checkup and adjust their withholding.

Visit IRS.gov for answers to 2019 tax-filing season questions

Visit IRS.gov for answers to 2019 tax-filing season questions

With major changes made by the Tax Cuts and Jobs Act, the IRS encourages business owners and self-employed individuals seeking more information on tax reform to review Publication 5318, Tax Reform What’s New for Your Business. Visit the IRS Tax Reform and Get Ready pages on IRS.gov for additional information.

Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund. “Where’s My Refund?” has the most up-to-date information available about refunds. The tool is updated once daily, so taxpayers don’t need to check more often

Steps to Take Now to Get a Jump on Next Year’s Taxes

Get ready today to file your 2018 federal income tax return.

Tax Reform- Review new IRS Publication 5307, Tax Reform Basics for Individuals and Families, to learn about how the new tax law may affect your tax return next year.

Withholding

What You Need to Know

  • Due to tax changes in the Tax Cuts and Jobs Act, many taxpayers’ withholding went down in early 2018, giving them more money in their paychecks in 2018.
  • You may receive a smaller refund – or even owe an unexpected tax bill – when you file your 2018 tax return next year, especially if you did not adjust your withholding after the withholding tables changed.Other changes that affect you and your family include increasing the standard deduction, suspending personal exemptions, increasing the child tax credit, adding a new credit for other dependents and limiting or discontinuing certain deductions.

What You Need to Do

  • Use the IRS Withholding Calculator to perform a Paycheck Checkup to help you decide if you need to adjust your withholding or make estimated or additional tax payments now.
  • Use your results from this Calculator to submit a new Form W-4, Employee’s Withholding Allowance Certificate, to your employer.
  • Make estimated or additional tax payments if the withholding from your salary, pension or other income doesn’t cover the 2018 income tax that you’ll owe for the year. Form 1040-ES, Estimated Tax for Individualsalso has a worksheet to help you figure your estimated payments.

 

Refunds

What You Need to Know

  • Expecting a refund? Some refunds cannot be issued before mid-February.
  • By law, the IRS cannot issue refunds before mid-February for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit.
  • This applies to the entire refund, even the portion not associated with these credits.
  • While the IRS will process your return when it is received, it cannot issue EITC/ACTC related refunds before mid-February.
  • Your refund may be different – or you may even owe an unexpected tax bill – when you file your 2018 tax return next year.
  • New tax law may affect the tax refund you expect next year. Review new IRS Publication 5307, Tax Reform Basics for Individuals and Families, to learn more.

What You Need to Do

  • Be careful not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations.
  • File a complete and accurate return using your year-end W-2, bank and 1099 income statements and include all known refundable credits when you file your original tax return.
  • File when you’ve received all your year-end statements and are ready to do so. If you usually file early in the year and you’re ready to file a complete and accurate return, there is no need to wait to file.
  • Be aware that some returns may require additional review for a variety of reasons and take longer. For example, the IRS, along with its partners in the state’s and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud.
  • Perform a Paycheck Checkup to help you decide if you need to adjust your withholding or make estimated or additional tax payments now.

 

New Form 1040, Filing Electronically and 2017 Adjusted Gross Income (AGI)

What You Need to Know

  • The Form 1040 for tax year 2018 is a shorter form and replaces the current Form 1040, Form 1040A and the Form 1040EZ.
  • The new Form 1040 can be supplemented with up to six additional schedules if needed.
  • If you prepare and file your own taxes electronically, you must sign and validate your electronic tax return by entering your prior-year AGI or your prior-year Self-Select PIN.
  • Some taxpayers using a software product for the first time may need to provide their 2017 Adjusted Gross Income, or AGI, to e-file their 2018 tax return.
  • If you’re using the same tax software you used last year, you will not need to enter your prior year information to electronically sign your 2018 tax return.

What You Need to Do

  • File electronically in 2019 as you usually do. Since more than nine out of 10 taxpayers use software or a tax preparer, the IRS is working with the tax community to prepare for the Form 1040 update.
  • Check out IRS Free File to learn more about online free tax preparation and e-file options.
  • Taxpayers who file on paper will use the updated Form 1040 and supplement it with any needed schedules.
  • If you are using a software product for the first time and you have a copy of your 2017 federal income tax return, your AGI is on line 37 of the Form 1040; line 21 on the Form 1040-A or line 4 on the Form 1040-EZ.
  • If you don’t have a copy of your 2017 tax return:
    • Ask your paid preparer, if you used one last year.
    • Log in to IRS.gov/account if you are an existing user.
    • Ask the IRS to mail a Tax Return Transcript to you by requesting it here or call 800-908-9946. Allow 5 to 10 days for delivery.
  • Learn more about how to verify your identity and electronically sign your tax return at Validating Your Electronically Filed Tax Return.

 

Individual Taxpayer Identification Number (ITIN)

What You Need to Know

  • You are likely to experience processing delays if you file a tax return using an expired Individual Taxpayer Identification Number.
  • There are two reasons your ITIN would expire December 31, 2018:
    • If you have not used your ITIN on a U.S. tax return at least once for tax years 2015, 2016 or 2017
    • If your ITIN has the middle digits 73, 74, 75, 76, 77, 81 or 82 (9NN-73-NNNN)
  • If your ITIN has middle digits 78 or 79 (expired 12/31/2016), or 70, 71, 72 or 80 (expired 12/31/2017), you can still renew it.

What You Need to Do

  • Renew your ITIN now if it has or will expire and you need to file a U.S. federal tax return in 2019.
  • You don’t need to take any action to renew your ITIN if you are not required to file a federal tax return.
  • Understand the new documentation requirements when applying for, or renewing, an ITIN for some of your dependents.
  • Ensure you submit an accurate W-7 and valid ID documents.
  • Find more information at IRS.gov/ITIN.

 

IRS Help

What You Need to Know

  • IRS.gov is the official IRS website where you can find answers to your questions and resolve tax issues online.
  • Those who earn around $55,000 or less may qualify for free tax help at a VITA or TCE site.
  • IRS Free File has free online options for taxpayers to prepare and e-file their tax returns.
  • The IRS is looking for volunteers for the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) Programs to provide free tax preparation services to their neighbors in 2019.

What You Need to Do

  • Use the Let Us Help You page where you can get help answering most tax questions, get a copy of your tax record and make a payment among other services.
  • You can also call (844) 545-5640 to make an appointment at one of our Taxpayer Assistance Centersif you need face-to-face help.
  • The IRS Services Guide also links you to these and other IRS services.
  • Go to the VITA or TCE page to learn more, then click on the VITA/TCE Locator tool beginning in mid-January to find a site near you that can help you prepare and e-file your return for free, if you qualify.
  • Go to the IRS Tax Volunteer page to learn more and sign up to become a VITA or TCE tax volunteer.

Here’s how and when to pay estimated taxes

Here’s how and when to pay estimated taxes

Certain taxpayers must make estimated tax payments throughout the year. Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated tax payments or a combination of the two. If they don’t, they may owe an estimated tax penalty.

For tax-year 2018, the remaining estimated tax payment due dates are Sept. 17, 2018 and Jan. 15, 2019.

Estimated tax is the method used to pay tax on income that is not subject to withholding. This income includes earnings from self-employment, interest, dividends, rents, and alimony. Taxpayers who do not choose to have taxes withheld from other taxable income should also make estimated tax payments. This other income includes unemployment compensation and the taxable part of Social Security benefits.

The IRS urges everyone who works as an employee and who also earns or has income from other sources to perform a Paycheck Checkup now. Doing so will help avoid an unexpected year-end tax bill and possibly a penalty when the taxpayer files their 2018 tax return next year. They can do a checkup using the Withholding Calculator on IRS.gov.

Here are some things to know for taxpayers who make estimated payments:

  • Taxpayers can pay their taxes throughout the year anytime. They must select the tax year and tax type or form when paying electronically.
  • Filers paying by check should make it out to the “United States Treasury” and indicate the tax year and type of taxes they are paying.
  • Taxpayers in presidentially-declared disaster areas may have more time to make these payments without penalty.
  • For easy and secure ways to make estimated tax payments, use is IRS Direct Pay or the Electronic Federal Tax Payment System. IRS.gov/payments has information on all payment options.
  • Taxpayers can find more information about tax withholding and estimated tax at the Pay As You Go page IRS.gov.
  • Publication 505, Tax Withholding and Estimated Tax, is another resource for taxpayers. Publication 505 has worksheets and examples, which can help taxpayers determine whether they should pay estimated tax.

Taxpayers with children, other dependents should check withholding ASAP

Taxpayers with children, other dependents should check withholding ASAP

Taxpayers who have children and other dependents should use the Withholding Calculator on IRS.gov to perform a “paycheck checkup.” The Tax Cuts and Jobs Act, which was passed late last year, includes changes that will affect 2018 tax returns that people will file in 2019.

Doing a checkup ASAP will help taxpayers determine if they need to adjust their withholding on their paychecks. The earlier they do this, the better. The sooner someone checks it, the more time there is for withholding to take place evenly during the rest of the year. Waiting until later in the year means there are fewer pay periods to make the tax changes.

The new law made changes to the child tax credit and personal exemptions. Taxpayers should do a “paycheck checkup” to determine if the tax law changes could affect their tax situation this year. Here is an overview of the changes to the law that could affect the withholding of parents and caretakers:

Child tax credit

  • The maximum child tax credit increased from $1,000 to $2,000 per qualifying child.
  • Taxpayers whose income was too high to benefit from the Child Tax Credit in prior years may now find they qualify.
  • The credit now phases out at $400,000 for couples and $200,000 for singles, compared with 2017 amounts of $110,000 for couples and $75,000 for singles.

Additional child tax credit

  • The maximum additional child tax credit increased from $1,000 to $1,400.
  • The ACTC is a refundable credit for taxpayers who owe little or no federal income tax.

Credit for other dependents

  • There’s a new $500 credit that can benefit taxpayers who support other dependents.
  • The taxpayer will claim the credit when filing a tax return.
  • For purposes of this new credit, other dependents include qualifying children or qualifying relatives, such as a college student or an elderly parent.

Personal exemption

  • The new law removes the personal exemption that taxpayers formerly claimed for themself, their spouse and dependents.

The Withholding Calculator allows taxpayers to enter their expected 2018 income, deductions, adjustments and credits – including the child tax credit. Users can click on definitions in the calculator for help in figuring out who qualifies for these expanded credits.

For information about how to use the calculator and how to change withholding, taxpayers can check out the IRS Tax Reform Tax Tips on IRS.gov.

Taxpayers may also need to determine if they should make adjustments to their state or local withholding. They can contact their state’s department of revenue to learn more.

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