Why You Should Revisit Your Tax Withholdings 

As the summer draws to a close, the IRS is encouraging taxpayers to take a proactive step: review your tax withholdings or payments now to avoid surprises during next year’s tax season. It is easy to put off thinking about taxes, but making necessary adjustments now can save you from stress—and potential penalties later. 

Here is why an end-of-summer tax checkup can help you avoid an unexpected bill and what tools the IRS provides to make it easier. 

Why Some Taxpayers Owe Instead of Getting a Refund 

While many taxpayers receive a refund after filing their taxes, many find themselves owing money instead. This often happens because of changes in income or life circumstances that go unaddressed during the year. A new job, side gig, or even major life events like marriage or having a child can affect how much you owe in taxes. Without adjusting your tax withholdings or estimated payments accordingly, you might not be paying enough throughout the year. 

So, who should be paying extra attention? Here are some examples: 

• Gig economy workers and side hustlers who do not have taxes automatically withheld. 
• Self-employed individuals who may need to make quarterly estimated tax payments. 
• Anyone earning income not subject to withholding, like investment or freelance income. 

If you fall into one of these categories, it is especially important to make sure your withholdings or estimated payments are accurate. 

How the IRS Tax Withholding Estimator Can Help 

The IRS offers a useful tool to make this process easier: the Tax Withholding Estimator. Available on IRS.gov, this tool helps you figure out how much federal income tax you should pay throughout the year, based on your current earnings and tax situation. 

To use the estimator, you will need: 

• Paystubs for all jobs you hold. 
• Other income information, such as earnings from side gigs, self-employment, or investments. 
• Your 2023 tax return for reference. 

By inputting these details, the estimator helps you: 

• Calculate your tax withholding and ensure it aligns with what you owe. 
• See how changes in your withholding will impact your tax refund, take-home pay, or balance due. 
• Adjust your withholdings to match your personal tax situation, potentially saving you from an unexpected tax bill. 

If you discover that your current withholdings are not enough, you can submit a new Form W-4 to your employer or adjust your quarterly estimated tax payments. 

Why Now is the Best Time for a Checkup 

The IRS stresses that tax planning now can prevent surprises and penalties later. If you do not pay enough tax during the year, you could face an estimated tax penalty, which for some taxpayers can add up to several hundred dollars. This is especially relevant for those who are self-employed, have multiple jobs, or have experienced major life changes such as: 

• Starting a new job or gig work. 
• A significant change in income. 
• Getting married or having a child. 
• Purchasing a new home. 

By using the Tax Withholding Estimator, you can avoid these penalties and keep your taxes on track. 

More Complex Tax Situations 

For most people, the Tax Withholding Estimator provides all the guidance needed to ensure your withholdings are correct. However, if you have a more complex tax situation—such as owing Alternative Minimum Tax, paying long-term capital gains, or receiving qualified dividends—you may need to refer to IRS Publication 505: Tax Withholding and Estimated Tax for more detailed guidance. 

Act Now to Avoid Tax Surprises 

Tax season may feel far away but taking a few moments to review your tax withholdings or estimated payments now can save you from stress later. Whether you have started a new job, earned extra income, or experienced a life change this year, the IRS Tax Withholding Estimator can help you align your payments with what you owe. 

Avoid penalties, surprises, and last-minute headaches—get ahead of tax season today. 

Disclaimer: This blog is for informational purposes only and not intended to be taken as professional advice. Always consult a qualified professional for specific guidance. While we aim to keep information accurate and current with 2024 tax regulations, be sure to review guidelines annually for updates as they frequently change.