TAS Tax Tip: It’s Time to Check Your Tax Withholding

August 20, 2019

The Internal Revenue Service recently launched the new Tax Withholding Estimator, an expanded, mobile-friendly online tool designed to make it easier to have the right amount of tax withheld during the year.

The new Estimator features include:

  • plain language to improve comprehension;
  • ability to move back and forth through the steps and correct previous entries and skip questions that don’t apply;
  • tips and links to help users quickly determine if they qualify for various tax credits and deductions;
  • automatic calculation of the taxable portion of any Social Security benefits;
  • and much more…

In addition, the Tax Withholding Estimator tool makes it easier to enter wages and withholding for more than one job held by each taxpayer, their spouse, as well as separately entering pensions and other sources of income. At the end of the process, it provides specific withholding recommendations for each job and each spouse and clearly explains what to do next.

Why check it at all?


The Tax Cuts and Jobs Act created a lot of changes for 2018 and for this year too. One change directly affects the rate at which taxes are withheld from paychecks for last year and again for this year, generally reducing the amount taken out. This change, combined with the other changes, may reduce the amount of an expected refund or may even cause an amount to be owed. But if you check now, you can make any adjustments needed before tax time.

Who should check and when?


It is a good practice for everyone to do a paycheck check-up every year. The earlier in the year that you do, the more accurate you can be when it comes time to file your tax return next year. Whether you did this already or not, it is a good idea to take the few minutes it takes to use the tool – to double check that you won’t be overpaying, or worse, underpaying and end up owing taxes. Checking now allows for several months still to catch-up if the results show you may owe. Keep in mind that the results will only be as accurate as the information you provide.

This tool works for most taxpayers, however, people with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents or certain other taxes, and people with long-term capital gains or qualified dividends.

Plan ahead before trying the Tax Withholding Estimator


Before using this tool, you’ll need to have your latest paycheck handy, and it may help to have last year’s tax return to estimate income from investments or a side job.

What if I don’t have enough withholding or none?


If you think you need to make changes to the amount withheld, the tool gives you the information you need to fill out a new Form W–4, Employee’s Withholding Allowance Certificate. Because this form tells your employer how much you want them to withhold, submit the completed W-4 to your employer as soon as possible to make the changes.

Since our federal income tax is a pay-as-you-go tax system, there are two ways to pay as you go, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, if you don’t have any at all, or if you receive income such as interest, dividends, self-employment income, capital gains, prizes and awards, or other income, you may have to make estimated tax payments. Also, if you are in business for yourself, you might need to make estimated tax payments.

What about next year?


The IRS recommends that you also recheck your withholding at the start of 2020. This is especially important if you reduce your withholding sometime during 2019. A mid-year withholding change in 2019 may have a different full-year impact in 2020.

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