Taxpayers who found themselves owing income tax this year due to insufficient paycheck withholdings won't find a redo with the IRS, but they can benefit from assistance to avoid the same predicament next year. The IRS is urging working individuals, the self-employed, and retirees to utilize the IRS Tax Withholding Estimator promptly to ensure accurate tax withholding for the remainder of the year. By utilizing this tool, taxpayers can evaluate their current withholding status and make adjustments to potentially increase take-home pay, although this may result in a reduced tax refund at year-end.
To make effective use of the estimator, individuals should gather key documents including pay stubs from all jobs, details on additional income sources such as side jobs or investments, and their most recent tax return. The estimator provides valuable insights by calculating federal income tax withholding and demonstrating how changes in withholding impact one's refund, take-home pay, or tax liability.
The IRS recommends using the Tax Withholding Estimator at least annually to ensure accurate withholding aligns with one's tax obligations, particularly following significant life events like marriage, divorce, or the birth of a child. While the estimator caters to most taxpayers, those with complex tax scenarios, such as owing alternative minimum tax or having substantial investment income, should refer to Publication 505 for specific instructions. Ultimately, the goal is to avoid surprises come tax season and strike a balance between take-home pay and potential tax refunds through informed withholding adjustments.
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