The Internal Revenue Service (IRS) has issued an alert to taxpayers, encouraging them to adjust their 2023 withholding so as to either avoid effectively giving the government an interest-free loan of their money or face the prospect of penalties and interest if too little tax is withheld.
In a recent news release, the IRS announced that it has made available an online tool that wage-earning taxpayers can use to determine if they have too much or too little tax withheld from their paychecks.
Called the Tax Withholding Estimator, it lets taxpayers figure out if they will receive a refund or need to make a payment to the IRS in order to avoid owing taxes and potentially incurring penalties the following year.
Find the Right Balance Between Too Much or Too Little in Tax Withholding
Having too much tax withheld and waiting for a refund at tax time is akin to giving the government an interest-free loan.
But if a taxpayer does not have enough taxes withheld from their paychecks throughout the year, they may owe a balance when they file their taxes. This means they will have to pay the remaining balance of taxes owed to the IRS when they file their tax return.
Owing a balance at tax time can be a significant financial burden, especially if the balance is large or if the taxpayer is struggling to make ends meet.
There are also penalties and interest that may apply when the taxpayer owes a balance when filing their taxes. The IRS charges interest on any unpaid taxes starting from the original due date of the return. Penalties may also be assessed if the taxpayer fails to file their return on time or if they owe taxes and fail to pay them by the deadline.
Owing a balance can also have negative effects on credit score as it is considered a debt that is unpaid. This can also lead to wage garnishments, liens on property, and even imprisonment if the taxpayer fails to pay their taxes.
By Adjusting Your 2023 Withholding, You Can Also Avoid Having to Pay Quarterly Estimated Tax Payments
The way taxes are paid in the United States is on a pay-as-you-go basis, which means that taxes are paid as income is earned throughout the year. This is typically done through withholding from paychecks, pension payments, Social Security benefits, and certain other government payments.
However, for people who have multiple sources of income, such as a second job or income from self-employment, unemployment, annuities, the gig economy, or digital assets, they may be required to make quarterly estimated tax payments to the IRS. This is to ensure that they are paying enough taxes throughout the year and to avoid owing a balance when they file their taxes.
By using the Tax Withholding Estimator tool, the IRS says that taxpayers can tailor the amount of income tax they should have withheld from their paychecks, which can also help avoid the need for quarterly estimated tax payments.
After determining how much tax should be withheld, taxpayers can make the change by submitting a new Form W-4 to employers.
Determining proper tax withholding for your situation will help prevent any surprises. If you need tax assistance – or any kind of tax resolution help, don’t hesitate to reach out to me or any of my Tax Problem Solver Team, and we can dive into whatever’s going on.
Contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
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