The IRS has launched a new “Tax Withholding Estimator”, an expanded, mobile-friendly online tool designed to make it easier to have the right amount of tax withheld during the year. It replaces the former IRS Withholding Calculator, and offers workers, retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax withheld from wages and pension payments.
The Tax Withholding Estimator is designed to help those doing tax planning, and is especially important for anyone facing an unexpected tax bill or a penalty this year. It is an important tool for those who made withholding adjustments in the past year, or had a major life change.
The new tool comes after widespread complaints from many taxpayers this year that they ended up unexpectedly owing taxes to the IRS after passage of the Tax Cuts and Jobs Act at the end of 2017. In many cases, the problem stemmed from taxpayers not adjusting the withholding for their paychecks because the tax overhaul eliminated the traditional personal and dependent exemptions.
The IRS publicized the need last year to go online and do a “paycheck checkup” using the online tax withholding calculator to adjust their withholding, but the process was cumbersome and confusing, and relatively few taxpayers followed the IRS’s advice.
The new Tax Withholding Estimator will help taxpayers who are most at risk of having too little tax withheld, including those who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income, and those with complex tax situations.
The Tax Withholding Estimator uses plain language in the questions it asks and it allows you to go back and fix your errors without starting over, as well as skipping questions that don’t apply. That’s a big change from before when you felt like you needed to a tax accountant to fully understand all the questions.
The results are still only as good as the information you provide. If your circumstances change during the year then you’ll want to revisit the Tax Withholding Estimator to make sure that your withholding is still correct. And if you still have questions that the Tax Withholding Estimator don’t answer, you should consult your local tax preparer.
If you’re worried about privacy, the Tax Withholding Estimator will not ask you to provide sensitive personally-identifiable information like your name, Social Security number, address or bank account numbers. Additionally, the IRS says that it does not save or record the information you enter on the Tax Withholding Estimator.
If you have any questions about how the new tax laws impact your withholding, please contact your tax accountant in Springfield Missouri at Schultz, Wood, & Rapp.