Have you tried the new IRS withholding calculator?
Everyone owes income taxes, and many hold their breath in April to find out if they will owe or be getting a refund. What if there was a way to find out ahead of time where you stand with your income taxes?
As of this summer, you have that opportunity.
The new IRS withholding calculator can help take some of that frustration away by estimating if you are on track to owe or get money back. This knowledge gives you the opportunity to change your withholding on your paychecks if you are unhappy with the prediction, which puts you more in the driver’s seat for your finances.
You can check out the withholding calculator online, and it has pretty good instructions but I wanted to clarify them here so you can be prepared with the information you’ll need.
About you
The first section is all about you. As you answer one question, the next question will emerge. You will be asked a total of five questions that include your filing status, dependent information, and what kind of income you will be claiming (w-4, self-employment, alimony, etc.).
Income & Withholding
This section asks questions about your spouse’s job and your job, including how often you are paid, last pay stub, total earned to date, and federal income tax paid to date. This is also where you enter any net self-employment income and related tax contributions to date.
Adjustments
You will be asked if you have any adjustments to your income tax information such as self-employment insurance deductions or other pertinent contributions. You will be given the option to view the potential adjustments or skip this step entirely.
Deductions
You will have the option to enter itemized deductions or accept the standard deductions. Keep in mind that beginning last year, the standard deduction increased, making this the option that will most likely reduce your tax liability.
Tax Credits
Tax credits are amounts you subtract directly from your tax obligation. This section will give you the chance to view potential tax credits or get your results without the tax credits.
Results
The last section gives your estimated results. Keep in mind that these are estimates. Any variation in what you entered today will change the amount you either owe or will get as a refund.
How do you feel about your results? Are you concerned about the amount you will owe? You can either change your withholding or you can save up money so it will be available to pay at tax-filing time. Or, perhaps you realize you’re about to get a big refund and would rather have that money now. You can change your withholding to have less taken out of each paycheck.