 Internal Revenue Service IRS tax news. IRS tax withholding estimator helps taxpayers get their federal withholding right. Which is a bit misleading to the point of basically being a lie because it's impossible to get your federal withholdings right. That would imply that you would be able to estimate exactly what your taxes are and set your withholdings up. So that you would pay the exact amount of taxes for the year resulting in no refund and no amount due at tax time. That being impossible due to, in part, the progressive tax system and the complexities with that, the amount of deductions that are involved and the complexity there, the number of credits that are involved and the complexity with them, the free payments that are being put into place and the constant change in evolution of the tax code which seems to be changing and involving much more rapidly, far more rapidly than any individual can basically keep track of or keep on top of. However, that said, it's still a good tool to be using because you basically do need at this point in time some kind of software to make a general prediction about your taxes in the future and then we try to overshoot those taxes because we can't possibly get it right and therefore we shoot to overshoot because we're trying to avoid the sticks of penalties and interest. So IRS tax tip 2022-66, April 28, 2022, all taxpayers should review their federal withholdings each year to make sure they're not having too little or too much tax withheld. So note that a lot of times or in prior years or in other situations, it has been easier to do that because of consistencies in terms of people's income generally and in the tax code itself. These days there's a lot more inconsistency both in terms of most people's earnings over the last few years or changing a lot and there's been a lot more changes to the tax code and a lot of those changes have happened on the low to moderate end as well which you would think would be more stable over time, oftentimes. So it used to be if you had like a W2 income and that was pretty stable and the tax code was pretty stable so you could look at the prior year income and kind of predict what's going to happen next year but that's becoming more difficult because it's less likely that people have that same kind of income or are not picking up any gig work or are not having the fluctuation. Therefore their income is going to change and they might be picking up gig work inside jobs which also adds a pretty big level of complexity to doing your estimated taxes on top of the fact that we've got these substantial changes to the tax code year over year. So to get your withholdings right then you pretty much have to check it out each year and because of the complexity and the tax return it's best to use a tool to be able to do that. Tax software that would be a projection tool would be the best tool because it's going to give you the best estimates even though again the tax law can change but if you don't have access to that you could use the tax withholding estimator online which is a good tool and is getting better and better at basically being software, tax software then you've got to put all these components in place and have it give you an estimate. Remember the goal of the estimate when you're thinking about the taxes here they want to get paid during the year so we're talking 2022 now they want to get paid during 2022 even though you're going to file the tax return by April 15th of 2023 about around that time so they want to get paid during 2022 even though you file the tax return at that point now if it was a perfect world if you could get your estimated taxes right quote right what would happen is something similar to the payroll taxes it should just be an information form when you actually file the tax return you would basically earn your money you would pay your taxes as you earn the money and then when you file the tax return by April 15th of 2023 it would just be an information return saying this is how much I owe this is what I paid nothing paid nothing do nothing owed right no refund no amount do at that point in time that's how it would work if you could get it right if the tax code weren't so complex that's what we would shoot for but it is too complex to do that what do we shoot for instead then we try to overshoot the amount of tax that we're going to withhold so that we can avoid the penalties and interest remember remember the tax code isn't a carrot right the tax code is a stick we're trying to avoid sticks we're trying to not have the iris take more money and so we're trying to avoid penalties and interest how do we avoid penalties and interest we pay a little bit more so that we don't underpay the taxes we're not trying to get a refund just so we can get our own money back at April 15th when I could have got it during the year in my paycheck that's not the point the point is I'm going to overpay to get a little refund so that I avoid getting hit by the sticks of penalties and interest okay so during this now doing this now can help protect against facing an unexpected tax bill or penalty in 2023 the sooner taxpayers check their withholding the easier is to get the right amount of tax withheld taxpayers whose employers withheld federal income tax from their paycheck can use the IRS tax withholding estimator there's a link to that here to help decide if they should make a change to their withholdings so remember it's up to you as the employee typically to kind of see if you need to make changes to the withholdings the employer although they're making the withholdings are doing so under coercement they don't want to do that they have to do that because the IRS is forcing them to make those withholdings and they want to do that in such a way that they don't get in legal trouble they don't want to get sued and they do that by basically saying you have to give us the information by which we will make our mandatory withholdings that means the information you have to give them is going to be how much to withhold in essence that's going to be on the W-4 calculation so you're going to want to then do your calculation of your estimator tool ask your employer for the W-4 to adjust the withholdings what you cannot typically do if you go to a fairly like a good sized company and ask them for advice about how much to withhold and what not or even how to fill out the W-4 they're likely to stonewall you and not tell you anything because they don't want to get sued right so they don't they're not going to help you to fill it out often times at the company because this is just something they so you got to use your own withholding estimator tool get the W-4 fill it out take it back to the HR and tell them what you want done with it so this online tool guides users through the process of checking their withholding to help determine the right amount to withhold for their personal situation taxpayers can check with their employer to update their withholding or submit a new form W-4 employees withholding certificate there's a link to that here adjustments to withholdings individuals should generally increase withholdings if they hold more than one job at a time or have income from sources not subject to withholding so these are things that are going to add levels of complexity at one point in time when the income tax code was you know it was a little simpler to do these estimates it was in part because we had single family you know single income families single income households generally and it was more likely that one individual would work at the same job for their entire life which is not the case these days people are jumping around jobs all the time and both spouses if they're married are jumping around jobs all the time and what not and kids could be you know working on random things or have a have a social media channel or something and be making money so it's a lot more complex to when you start adding multiple people's earnings into a progressive tax system that's going to be reported on one area to then think about what the withholdings are with the W-4 kind of calculation so that's why you basically need software to kind of make that estimate these days so if they don't make any changes they may owe additional tax and possibly penalties when filing their tax return individuals should generally decrease their withholdings if they qualify for income tax credits deductions other than the basic standard deduction now this is the big thing these days that is going to cause a lot of like issues with low to moderate income families because there's been huge changes with those credits like this the child tax credits and the earned income tax credit for example have these big these big changes and then of course we got the stimulus payments and the recovery rebate credits those have big impacts on people's taxes and their refunds and whatnot and those some of those laws may or may not continue they were short term laws but whenever you have a change to the law that's beneficial to the tax code it's likely that it'll stick at some point so there's questions as to whether or not they're going to re-upload these laws what's going to happen next year you don't know and those are significant credits that have a big impact on the weather you're going to get a how much water will hold so either way the those who need adjust their withholdings must prepare a new W-4 employees with holding certificate they need to submit the new W-4 to their employer as soon as possible since withholding occurs throughout the year individuals who should check their withholding include who experienced a marriage divorce birth or adoption of child purchase of new home or retirement now notice these are like the normal rules under normal conditions if everything else was equal then these big changes in your life would be things that would constitute a big change most likely in your taxes which would make you would make it behoove you to then check out your withholding so that you can avoid the sticks of penalties and interest but these days just just due to COVID your work environment might have changed and the laws are going to change and the tax code laws could change so I would think almost anybody these days might want to check their withholdings at the beginning of the year and end of the year just due to the changes in the environment even if your job is stable the tax environment is changing you know somewhat rapidly or has the potential to over the over the next year so so who experienced if you got married divorced a birth or an adoption those are all things that have a significant impact on the taxes you're thinking about getting married or divorced obviously you do a tax projection and whatever the taxes come out to be best that's what decides your decision on those kind of just kidding but you should take that into consideration or at least know what's going to happen because it's a shock if it's on the negative so who are working to or more jobs at the same time or who only work part for part of the year so if you only work like part of the year and your withholdings are based on the entire year then your withholdings are going to be you know skewed or off who claims a credit such as a child tax credit so that's going to the child tax credit significant and have big changes this year with dependents aged seventeen or or older who itemized deductions on a prior year return with other personal and financial changes so tax withholding estimator benefits the IRS tax withholding estimator can help taxpayers determine if they should complete a new W for know what information to put on the form W for save time because the tool completes the form worksheet taxpayers should prepare for should prepare before using the tax withholding estimator by having their most recent pay stubs information for other income sources and their most recent income tax return the tool does not ask for sensitive information such as names social security number address or bank account numbers so it's just like a calculator tool but you need the calculation numbers possibly not the personal information stuff to get that done taxpayers shouldn't use the tax withholding estimator if they have a pension but not a job they should estimate their tax withholding with the new form W for P there's a link to that here they have non resident alien status they should use notice 1392 supplement for form W for instructions for the non resident aliens their tax situation is complex this includes alternative minimum tax long-term capital gains and qualified dividends meaning usually higher income individuals in those cases and obviously in those cases you probably want to have a tax professional at that point that's going to help you make actual estimates and what not because it'll be a more complex situation so you can see publication 505 tax withholding estimator tax guide for that more information down below at the link tax withholding estimator FAQ's which is frequently asked questions and there'll be a link to this in the links to that stuff here and there'll be a link to this in the description