Hey everyone! I’m Bette Hochberger, CPA, CGMA. As we step into another tax year, it’s essential to stay informed about the latest updates from the IRS. Recently, the Internal Revenue Service reminded all of us about the importance of checking our tax withholding now to avoid any surprises when we file our tax returns next year. Whether you’re an employee, an independent contractor, or a retiree, understanding your tax withholding is crucial for your financial well-being.
Why Check Your Withholding?
The IRS emphasizes that making adjustments to your tax withholding earlier rather than later can save you from a stressful tax season. By ensuring that the right amount of federal income tax is withheld from your paychecks now, you can avoid a hefty bill or a large refund come tax time in 2026. Tax withholding is essentially a pay-as-you-go system, meaning you need to pay your taxes as you earn your income.
For employees, this means that your employer deducts a portion of your paycheck for federal income tax. If you’re self-employed, it’s the amount you voluntarily set aside for estimated taxes. This is where the IRS Tax Withholding Estimator comes into play!
The IRS Tax Withholding Estimator: Your New Best Friend
The Tax Withholding Estimator is a fantastic, free online tool that helps you determine if you’re having the right amount of federal income tax withheld. It’s user-friendly and designed to prevent those unexpected tax bills or substantial refunds. By using this estimator, you can take control of your finances by adjusting your withholding to match your current situation.
After running your numbers through the estimator, you may find that you need to submit an updated Form W-4, which is your Employee’s Withholding Certificate, to your employer. Alternatively, if you’re self-employed, you can adjust the amount you set aside for estimated taxes.
Benefits of Adjusting Your Withholding
Adjusting it has several benefits:
- Prevent Owing Money: By fine-tuning your withholding, you can avoid potential penalties and owing a significant amount at tax time.
- Increase Your Take-Home Pay: Instead of waiting for a tax refund, you can increase your take-home pay throughout the year, giving you more financial flexibility.
When to Use the Estimator
The IRS recommends using the Tax Withholding Estimator at least once a year, especially after any significant life changes. This could include buying a home, changing jobs, having a child, or altering your marital status. These events can impact your tax situation, so it’s wise to re-evaluate your withholding.
Gathering Your Documents
To get the most accurate estimate, the IRS suggests gathering a few key documents before you start. Make sure you have:
- All income statements, including your spouse’s if filing jointly
- Data from other income sources
- Your most recent income tax return
As we navigate through 2025, let’s make proactive choices regarding our finances. Checking your tax withholding now can lead to a smoother tax season next year. So, take a moment to utilize the IRS Tax Withholding Estimator or schedule a meeting with us for assistance, and ensure your financial future is on the right track. Remember, a little preparation now means less stress later!
I hope you learned something new today. As always, stay safe, and I’ll see you next time.
