IRS' new paycheck withholding estimator should reduce tax refund surprises in 2020
Wednesday, August 07, 2019
Paycheck withholding is most Americans' introduction to taxes.
But even though millions of us have been seeing income taxes come out of our checks for years, the system still is confusing for many.
It became a bigger mess this filing season, when folks filed their first tax returns under the Tax Cuts and Jobs Act (TCJA) changes.
A lot of them were not amused.
The unexpected price of wrong withholding: They discovered that they weren't getting the same big tax refunds they had in prior years. These annual spring payouts had served as distributions from their withholding tax deposits to the Bank of Uncle Sam.
See Also: Tax refunds are nice, but savings provide a better payoff
In some cases, folks discovered to their dismay that they actually owed taxes for the first time in ages.
In many — OK, most if truth be told by angry taxpayers — cases, the probably was that the largest tax overhaul in more than three decades didn't mesh well with the old withholding system.
See Also: Still stewing about your tax refund? Adjust your withholding
By now, though, folks have caught on and know that they need to reevaluate and adjust their paycheck withholding.
Now that process, says the IRS, is even easier.
New withholding tool: This week the Internal Revenue Service launched a new online tool to help taxpayers more accurately adjust their tax withholding.
The new Tax Withholding Estimator replaces the agency's old Withholding Calculator.
The new tool also comes on the heels of the IRS' reworked Form W-4, whose new look should help taxpayers withhold the correct amounts.
"The new estimator takes a new approach and makes it easier for taxpayers to review their withholding," said IRS Commissioner Chuck Rettig in a statement announcing the new online tax tool. "This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships."
The new interactive withholding tool, says the IRS, was created using feedback and concerns of taxpayers and tax professionals.
Incorporating more real-world tax situations: In essence, it more accurately reflects the wider tax-paying population.
The new online withholding estimator now offers workers, as well as retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments, says the IRS.
See Also: A sharing economy earnings checkup now
can help gig workers avoid a filing season tax surprise
Specifically, according to the IRS, the new withholding estimator makes it easier to enter wages and withholding for each job held by a taxpayer and spouse, as well as separately entering pensions and other sources of income.
At the end of the process, the tool makes specific withholding recommendations for each job and each spouse and clearly explains what the taxpayer should do next.
See Also: Family-related tax law changes mean
that taxpayers with dependents need to check their withholding
More user friendly: In addition to revising the withholding estimator to reflect the new tax law changes, the IRS says this online tool uses plain language so that it's easier for all taxpayers to understand.
Other enhancements that make the estimator more useful than its predecessor include:
- The ability to more effectively target at the time of filing either a tax due amount close to zero or a refund amount.
- A new progress tracker to help users see how much more information they need to input.
- The option to move back and forth through the steps, correct previous entries and skip questions that don’t apply.
- Improved tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
- A self-employment tax component for a user who has self-employment income in addition to wages or pensions.
- Automatic calculation of the taxable portion of any Social Security benefits.
See Also: It's time for itemizers to check payroll tax withholding
And for all y'all who do things on the go, the new withholding estimator also has a mobile-friendly design.
Use it now: Even if you were happy with the amount withheld from your paycheck and/or refund this filing season, take a look at the new Tax Withholding Estimator.
You might find a few tweaks to your withholding will be even better.
And do so soon.
There still are almost five full months left in the 2019 tax year. The estimator can help you refine your withholding and tax planning for the rest of the year.
See Also: 7 backup withholding tax questions & answers
More importantly, if you find you need to make changes, particularly ones that require a bit less significant as they are spread out over more paychecks.
As the IRS infographic below illustrates, it's not a difficult process. It's simply one that you need to take care of yourself to avoid any tax refund or bill surprises next year.
Advertisements
Comments
You can follow this conversation by subscribing to the comment feed for this post.