The Internal Revenue Service (IRS) has recommended that taxpayers who have filed or are about to file their 2022 tax return use the IRS Tax Withholding Estimator to update the amount of tax to be taken out of their 2023 pay. The IRS has stated that this is an ideal time to utilize the online tool, which is also available in Spanish, to adjust the amount of tax withheld, thereby putting more cash in the taxpayers’ pockets or avoiding a tax bill for 2023.
The Tax Withholding Estimator provides a step-by-step guide to help workers, retirees, and the self-employed tailor the amount of income tax they have withheld from their wages, pensions, and other income. It is especially helpful following a significant life event, such as marriage, divorce, home purchase, the birth or adoption of a child, or a significant change in income.
Employees 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. By checking withholding, they can ensure the right amount of tax is withheld, preventing an unexpected tax bill or penalty at tax time. Alternatively, they can decide whether to have less tax withheld from each paycheck, boosting take-home pay and reducing refunds at tax time.
The Tax Withholding Estimator’s results are only as accurate as the information entered. The IRS recommends that taxpayers gather their most recent pay statements and those of their spouse if they are married, along with information on other sources of income and their most recent income tax return.
Income taxes must generally be paid as taxpayers earn or receive income throughout the year, either through withholding or estimated tax payments. If the amount of income tax withheld from one’s salary or pension is insufficient, 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. The IRS recommends that individual taxpayers use the IRS online Interactive Tax Assistant to determine if they are required to pay estimated taxes. Good recordkeeping is critical, particularly for those with complex tax situations.
Taxpayers with complex tax situations, including those who owe alternative minimum tax or certain other taxes and those with long-term capital gains or qualified dividends, should follow the instructions in Publication 505, Tax Withholding and Estimated Tax.
