Check tax withholding amount now to prevent a big surprise in April
The Internal Revenue Service today urged taxpayers to check their tax withholding at Tax Withholding Estimator while there’s time left in 2022 to benefit from any necessary changes. An adjustment made now will help people avoid a big surprise, such as a big refund or a balance due, at tax time in 2023.
The tool offers workers, retirees, self-employed individuals and other taxpayers a user-friendly, step-by-step tool for effectively tailoring the amount of income tax they should have withheld from wages and pension payments, or if they should make an estimated tax payment, based on their complete set of facts and circumstances.
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. The average refund in 2022 is just under $3,000.
A few other facts about refunds:
- Taxpayers do not have to get one. Proper withholding adjustments help people boost take home pay rather than be over withheld and get it back as a tax refund.
- While most are issued in 21 days or less from an error-free and paperless tax return, many take longer for different reasons.
- Taxpayers are advised not to rely on a refund for big purchases.
- Direct Deposit is the easiest and most convenient way to get a refund. More than 90% of all refunds are issued this way.
- Paper return processing delays stemming from the pandemic are six months or more. The IRS COVID-19 operations page offers complete details.
Some unforeseen life events can be a trigger to make withholding adjustments. They include:
- Coronavirus tax relief. Tax help for taxpayers, businesses, tax-exempt organizations and others – including health plans – affected by the coronavirus (COVID-19).
- Disasters such as wildfires and hurricanes. Special tax law provisions may help taxpayers and businesses recover financially from the impact of 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. The IRS advises people earning income in the gig economy to consider estimated tax payments to avoid a balance due or penalties when they file.
For more information about estimated taxes and tax withholding, contact your ShindelRock tax professional.