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Washington News
End-of-Summer Tax Checkup
On August 27, the Internal Revenue Service (IRS) reminded taxpayers to use this end-of-summer opportunity to review their withholdings or tax payments. The IRS recognizes that most taxpayers receive a refund during the filing season. However, some taxpayers unexpectedly end up owing taxes. The individuals who owe taxes are frequently gig economy workers, individuals with a "side hustle" or anyone who earns income but does not pay withholding.
The IRS suggests that taxpayers go to IRS.gov and use the Tax Withholding Estimator to calculate what amounts should be paid during the year. The IRS also offered the following tips:
- Tax Refunds — The federal tax system is designed to encourage payments as income is received. If you earn wages, your taxes will be withheld from your paycheck by an employer. If you are a gig economy worker or have untaxed income, you should also make quarterly estimated tax payments to avoid a penalty when you file. Two thirds of taxpayers receive a refund each year. The average refund last year was approximately $2,900.
- Unexpected Tax Bills — Unfortunately, some taxpayers have an unexpected tax bill and must pay a substantial tax penalty. Many taxpayers pay several hundred dollars as a penalty amount. This happens more frequently for self–employed individuals, gig economy workers or those with more than one job.
- Tax Withholding Estimator — The handy tax estimator tool on IRS.gov will help you calculate the amount of tax you are likely to pay. You will need pay stubs for all your jobs and other information for side jobs, self-employment income, investment income and a copy of your 2023 tax year return. With the Tax Withholding Estimator, you can determine the federal income tax due, see how a change in your take-home pay would affect withholding and select the best withholding amount. If you need to adjust your withholding, you will need to contact your employer and update your IRS Form W-4 with the new amount.
Finally, the IRS reminds taxpayers to check their withholding if there are five circumstances that apply. These changes are if the taxpayer has a new job or other employment that produces income, has received a substantial bonus or an increase in income, gets married, has a child or adopts a child or purchases a home. With any of these changes, a taxpayer should update their tax withholding.
Published August 30, 2024
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