It’s a good idea for taxpayers to review their withholding annually. By using the IRS Tax Withholding Estimator online, taxpayers can check and make sure they’re not having too little or too much federal tax withheld.
The online tool offers both workers and retirees a step-by-step method to help figure out if they should adjust their withholding. Taxpayers who need to adjust their withholding should submit a new Form W-4, Employee’s Withholding Certificate to their employer (see below for information on retirees).
According to the IRS, the following people should check their withholding:
- who experienced a marriage, divorce, birth or adoption of child, purchase of a new home or retirement
- who are working two or more jobs at the same time or who only work for part of the year
- who claim credits such as the child tax credit
- with dependents age 17 or older
- who itemized deductions on prior year returns
- with other personal and financial changes
Using the IRS Tax Withholding Estimator
This tool will help determine if they should complete a new Form W-4 and also help users determine what information to put on a new Form W-4. Users won’t need to complete the form worksheets because the Estimator does the worksheet calculations.
“Taxpayers who complete a new Form W-4 should submit it to their employer as soon as possible. With withholding occurring throughout the year, it’s better to take this step sooner, rather than later,” the IRS advises.
The IRS recommends that taxpayers should generally increase withholding if they hold more than one job at a time or have income from sources not subject to withholding. If adjustments aren’t made for these situations, they will likely owe additional tax and possibly penalties when filing their tax return.
On the other hand, people should generally decrease their withholding if they are eligible for income tax credits or deductions other than the basic standard deduction.
Having the most recent pay statements, information for other income sources and the most recent income tax return can help taxpayers use the Withholding Estimator to figure out their correct withholding.
The IRS reminds taxpayers that they might also need to adjust their state or local withholding. They can contact their state’s department of revenue to learn more.
Taxpayers can access the online IRS Estimator at https://apps.irs.gov/app/tax-withholding-estimator. The IRS’ frequently asked questions on the tool are available here.
Tax Withholding for Retirees
Like employees, retirees can use the IRS withholding calculator to estimate their total income, deductions and tax credits.
When using the calculator, retirees should treat their pension like income from a job by entering:
- The gross amount of each payment
- How often they receive a payment, such as monthly or quarterly
- The amount of tax withheld so far this year
The IRS recommends before using the calculator, users should have a copy of last year’s tax return. In addition, knowing or having a record of the total federal income tax withheld so far this year will also make the tool’s results more accurate.
Federal retirees receiving a FERS or CSRS annuity can adjust their withholding by using the Office of Personnel Management’s services online (https://www.servicesonline.opm.gov/) to start, change, or stop the federal tax withheld.
More information on federal retirement annuity taxes can be found on OPM’s website here.