Make Sure Your Tax Withholding Is Just Right
TLDR: Not too much, not too little - taxpayers should check if their tax withholding is just right
There are good surprises and there are bad surprises; but generally, a tax-related surprise is probably unwanted!
To avoid tax surprises, taxpayers should review their tax withholding. There’s still time left in 2022 to make changes and see the benefit on their tax return next year. An adjustment made now will help people avoid the surprise of a balance due or a larger-than-expected refund. People who owe taxes when they file may also face a penalty for underpayment, so they should take steps to avoid that.
It’s an especially good idea to check withholding when a taxpayer has a big life change. Events like marriage, divorce, a new child, a new home purchase, or changes in tax laws can all be reasons to adjust withholding.
Credit amounts may change each year. Taxpayers can visit IRS.gov and use the Interactive Tax Assistant to identify whether they qualify for any tax credits that may call for a withholding adjustment.
Taxes are pay as you go
Taxes are generally paid throughout the year, whether from salary withholding, quarterly estimated tax payments or a combination of both. About 70% of taxpayers, however, withhold too much every year. This typically results in a refund.
A few other facts about refunds:
Proper withholding adjustments help people boost their take home pay rather than overwithholding taxes throughout the year and getting it back as a tax refund.
While the IRS issues most refunds in 21 days or less from an error-free electronic tax return, it may take longer for different reasons.
It’s generally not a good idea to rely on a refund for big purchases.
Direct Deposit is the easiest and most convenient way to get a refund. The IRS issues more than 90% of all refunds this way.
Paper return processing delays stemming from the pandemic are six months or more. The IRS COVID-19 operations page offers complete details.
Tax Withholding Estimator
The Tax Withholding Estimator can help people determine if they have too much income tax withheld and how to make an adjustment. In other cases, it can help taxpayers see if they should withhold more or make an estimated tax payment to avoid a tax bill when they file their tax return next year.
Other items may affect 2022 taxes Some unforeseen life events can make withholding adjustments necessary. They include:
Coronavirus tax relief — Tax help for taxpayers, businesses, tax-exempt organizations and others affected by the coronavirus.
Disasters, such as wildfires and hurricanes — Special tax law provisions may help taxpayers and businesses recover financially after a disaster, especially when the federal government declares their location a major disaster area.
Job loss – IRS Publication 4128, Tax Impact of Job Loss — Explains how this unfortunate circumstance can create new tax issues.
Workers moving into the gig economy due to the pandemic — People earning income in the gig economy should review their estimated tax payments to avoid a balance due or penalties when they file.
If you need help with reviewing your withholding, give us a call today at (720) 712-7724 or book a FREE consultation using the link: https://calendly.com/rpfs/consult-with-ea
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