Tax time is a funny time of year. Some people are really excited when April rolls around. That’s because they get a lot of tax withholding money taken out of their paychecks throughout the year. Therefore, after filing their taxes, they get a nice big refund.
On the other hand, if you’re the type who tends to owe money, then tax time is no fun at all. One of the best ways to avoid the dread of this season is to act in advance. If you make sure that you’re withholding enough from your paycheck throughout the year, then you don’t have to stress about tax time in April.
The IRS has released a new tool that can help.
New IRS Tax Withholding Estimator
The IRS has always offered a tax withholding calculator. However, there were a lot of changes to taxes last year. Therefore, they felt that it was an important time to update. They’ve released a new tax withholding estimator that takes into account all of the latest tax rules.
You can use the tool to enter some basic information about your paycheck and current tax withholdings. Before using the tool, you should gather your recent pay stubs and last year’s tax forms. Then you can easily use this information to enter the required details into the withholding estimator.
The tool will also ask you a few basic questions that affect how much you’ll pay in taxes. For example, it will ask how many dependent children you have. The more accurately you answer all of the questions, the better result you’ll get from the estimator.
This tool will tell you how much money you should have withheld from each paycheck. If you follow the advice, then you shouldn’t owe any money come April 2020.
How to Use Information from the Tax Withholding Estimator
The Tax Withholding Estimator will give you a number. That number is the amount that you should have withheld from your taxes. It’s a good guess that should leave you owing nothing come tax time.
You can use this information to your advantage in a few different ways. For example, let’s say that the tool estimates you should have $500 withheld from each paycheck. If you withhold that amount, then you should break even come tax time. Now you can look at how much you’re currently getting withheld and make some choices.
Let’s say that you’re currently getting exactly $500 withheld. You could make the choice to keep things exactly as they are. Alternatively, you could make the choice to increase that slightly. This would cover any unexpected costs that might arise to help guarantee that you don’t owe taxes in April. Plus it might mean that you get some refund money back come tax time.
On the other hand, let’s say that your tax withholding is currently $1000. After the tax laws changed, people didn’t need to pay as much. However, if your taxes were already set up with your employer, perhaps nothing changed. Therefore, you’re paying in much more than you need to. You could keep things as they are and get all of that money back come tax time. On the other hand, you could safely reduce your tax withholding, which would give you more money in each paycheck now.
How will you use the new Tax Withholding Estimator to help you adjust your paycheck?