Make sure withholding is right on 2023 paychecks
WASHINGTON — The Internal Revenue Service today suggested taxpayers who filed or are about to file their 2022 tax return use the IRS Tax Withholding Estimator to help update the amount of tax to have taken out of their 2023 pay.
The IRS says now is a good time to use this online tool. The Tax Withholding Estimator, also available in Spanish, can help people adjust how much is withheld and could put more cash in their pocket or help them avoid a tax bill for 2023.
The Tax Withholding Estimator offers workers, retirees and the self-employed a step-by-step guide to effectively tailor the amount of income tax they have withheld from wages, pension and other income. It’s especially useful after a major life change such as marriage, divorce, home purchase, the birth or adoption of a child or a big change in income.
Benefits of using the Estimator
For employees, withholding is the amount of federal income tax taken out of their paycheck. Workers can use the results from the Tax Withholding Estimator to determine if they should complete a new Form W-4 and submit it to their employer. For example, checking withholding can:
- Ensure the right amount of tax is withheld and prevent an unexpected tax bill or penalty at tax time.
- Determine whether to have less tax withheld from each paycheck, boosting take-home pay and reducing refunds at tax time.
What records are needed?
The Tax Withholding Estimator’s results are only as accurate as the information entered. To help prepare, the IRS recommends taxpayers gather:
- Their most recent pay statements and, if married, statements for their spouse.
- Information for other sources of income.
- Their most recent income tax return.
Withholding or estimated payments?
Income taxes must generally be paid as taxpayers earn or receive income throughout the year, through either withholding or estimated tax payments. If the amount of income tax withheld from one’s salary or pension is not enough, or if they receive other types of income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may need to make estimated tax payments.
In 2023, taxpayers who receive more than $600 in income from third-party settlement organizations, including popular payment apps, may receive Form 1099-Ks. Individual taxpayers can use the IRS online Interactive Tax Assistant to see if they’re required to pay estimated taxes. Good recordkeeping is key.
People with complex tax situations should instead use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe alternative minimum tax or certain other taxes and people with long-term capital gains or qualified dividends.
Call WXC for more details.