Due to the recent tax law changes, the IRS has updated its online tool for taxpayers who are employees. They have created a Tax Withholding Estimator, which is designed to help employees determine the correct amount of Federal income tax they should have withheld from their paychecks. This tool is an upgrade from their previous Withholding Calculator, including advanced features to factor in other income, such as self-employment earnings and social security benefits.
If a taxpayer determines they are not withholding enough, they should take action before the end of the year to avoid potential underpayment penalties. Employees can have their employer increase their withholding to reach the correct amount before year end. Another option would be making quarterly estimated tax payments to the IRS; however, this could still result in underpayment penalties as estimates are not treated as paid evenly throughout the year.
Taxpayers should keep in mind that this tool is just an estimate. The IRS urges anyone with a complex tax situation to not simply rely on the Withholding Estimator. It is recommended that these taxpayers consult with a tax advisor to discuss their specific situation.
If you have any questions, please contact Rebecca Bischoff, CPA at 314.576.1350 or firstname.lastname@example.org.