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. This is important for both federal employee and retirees receiving annuities and other retirement income.
SEE ALSO: Many Federal Employees and Retirees Need to Fix Tax Withholding
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
Using the New IRS Tax Withholding Estimator
Earlier this month, the IRS launched the new and improved tax withholding estimator to help taxpayers check their withholding. The tool has undergone several enhancements, and is now also a mobile-friendly tool.
After using the estimator, 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.
Some taxpayers may find they need to pay more taxes before filing their tax returns in 2020. These individuals have a few options for doing so.
3 ways taxpayers can adjust their withholding
1. Change 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.
2. Have 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.
3. Make 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, the remaining estimated tax payments are due from individual taxpayers on September 16, 2019, and January 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.
To use the IRS’ online tax withholding estimator, go here.