Filing your taxes is a lot of work because any mistake could lead to some serious issues. One example is how you can be forced to pay a “surprise fee”. This happens if your tax refund for the year is too high or if you put the wrong amount for your income.
Surprisingly, the IRS recently announced a way to fix this issue through the IRS Tax Withholding Estimator. What does this do? How much difference does it make? Let’s find out!
Filing Mistakes Can Lead To Surprise Fees
Despite the IRS knowing how much tax you owe, you have to still do the calculations yourself. Sadly, if you pay the wrong amount for the year, you will get hit with a “surprise fee”. This amount is supposed to cover the outstanding amount, and failure to pay means legal trouble.
The IRS understands that this is a problem and has provided a solution. It’s called the IRS Tax Withholding Estimator. In simple words, this tool lets you know how much to pay.
About The IRS Tax Withholding Estimator
The IRS Tax Withholding Estimator helps Taxpayers adjust the amount of income tax withheld from their income. Therefore, you have a reliable way to fact-check your calculations and pay the right amount.
This also means there’s a lower chance of getting a surprise fee the following year. The best part is that it’s available for everyone, from big businesses to self-employed workers.
How The IRS Takes Their Share
For context, Tax Withholding is when the federal income tax amount gets deducted from your paycheck. For example, if you earn $1.000 daily, $200 will be removed from your paycheck as the 20% for federal income tax.
That withheld amount is then sent to the IRS to cover your federal income liability. Now, with this new tool, there’s less chance of sending the wrong amount. All employees have to do is check the estimator and follow its lead.
‘It Will Help Taxpayers Avoid Unwanted Results’
The IRS announced on their website: “The Tax Withholding Estimator will help taxpayers avoid unwanted results in 2024 if the refund for their 2023 return was too large, too small, or if they received a surprise tax amount due.”
At first, people were shocked that the government created a better way to do taxes and not some private company. Nevertheless, they accepted it as a welcomed development.
The Tool Can Even Help To Save Money
Based on how this tool works, it could save taxpayers more money. Basically, checking with the Withholding estimator allows you to decide on how to reduce your tax withholding.
Once the tool gives you the green light to decrease the amount, you have more money left from your paycheck. But remember that while this increases your take-home pay, it also drops your tax refunds. So tread lightly.
‘Use It Now!’
Failing to use the withholding estimator could mean paying an unexpected amount the following year. That’s why the IRS recommends using the tool now, especially for those who just did their taxes.
This also applies to people who recently did any financially significant thing. For example, those that recently got married or divorced or had a child.
‘This Is Pivotal…’
Alex Beene, financial literacy instructor at the University of Tennessee at Martin, commented on the new IRS tool. He said: “The IRS has provided it as the most accurate tool to find out the best estimate of what you will owe based on the information you provide.”
He continues, saying: “This is pivotal, especially for those who have income they need withholding to apply to throughout the tax year. No one wants to get to the end of the year with a massive tax bill.”
Kevin Thompson Also Gave His Comments
Finance expert and founder/CEO of 9i Capital Group, Kevin Thompson gave his two cents on the development. He said that surprise fees usually happen to “higher-income joint filers who claim zero for withholdings.”
He continues in an interview: “The last thing you want is to finalize your taxes and see that comma in the tax column showing you owe money. That is never a good outcome during the tax year.”
This Tool Has Been Around Since 2019
While most people are just getting to know about the IRS Tax Withholding Estimator, it’s actually been around since 2019. The only issue was that it wasn’t perfect. So the IRS had to keep testing and improving its features.
Now, it’s more reliable that the IRS guarantees it’s all you’ll need to file your taxes from now on.
Two Other Programs Are Live
If you’re too busy to handle your taxes, the next best step is to hire an accountant. However, this is expensive. Most people can’t afford this and the IRS also plans to change that too.
They released the Free File and Direct File pilot programs. They claim that these tools simplify the tax process, and can help you save money on an accountant.
How To Use The IRS Tax Withholding Estimator
The next question is “How do you find and use this program?” Well, it’s simple. Visit IRS official website then search for “Tax Withholding Estimator.” You’ll come across a page with some instructions before directing you to to calculator.
Keep in mind that there are some requirements for using the estimator. First, you’ll need to present statements for your most recent pay. You’ll also need to provide details on your most recent income tax return and other sources of income.
The Importance Of This Estimator
Finance expert Michael Ryan reveals the true benefit of this new estimator. He explained that a lot more people will struggle with filing the right amount soon. This is because the IRS has raised many tax brackets and deductions by 5%.
He further explains: “If you received a substantial pay raise due to inflation, you might end up owing a large tax bill when you file your return. To make matters worse, you could be potentially facing penalties and interest charges from the IRS.”
It’s A Welcomed Improvement
As different experts have pointed out, no one wants to receive a surprise fee the following year. Fortunately, the IRS understands this problem and has introduced the withholding estimator.
To use it, just visit the IRS official website and search for the tool. Insert all the requested details and it should help you fact-check your tax filing quickly.
