The Internal Revenue Service (IRS) has made an important reminder. Millions of American taxpayers have already filed their 2024 tax returns. Therefore, it is time to check if they need to update their tax withholding. All you have to do is make use of the Tax Withholding Estimator. Not only is it free to use, but it is also user-friendly.
In fact, this IRS tool will be useful to estimate the federal income tax you would like your employer to withhold from your paycheck. In this way, you will receive an accurate return, and you will not pay too much or too little. In case you did not know, your withholding affects your tax refund, tax due, and take-home pay as well.
How does the IRS tool work?
The Tax Withholding Estimator helps taxpayers estimate their federal income tax withholding. Secondly, it will also help you find out how much your take-home pay, tax due, or refund may be affected.
What is more, it will help you choose an estimated withholding amount that actually works well for you. Bear in mind that if the information you enter is not accurate, you will not get accurate results. They are as accurate as the information you enter.
All you need to have ready before you start using the Tax Withholding Estimator is:
- Most recent tax return
- Other income information, like investments, side jobs, or self-employment
- Paystubs for all jobs (spouse too)
IRS says which taxpayers should not use this tool
Actually, it is not possible for you to use this tool if you have nonresident alien status. In this case, you will have to use Notice 1392 Supplemental Form W-4 Instructions for Nonresident Aliens, says the IRS.
Apart from them, it will not be possible to use the Tax Withholding Estimator if your tax situation is complex. For example, if it includes the alternative minimum tax.
Many taxpayers do not know when and why they should update their tax withholding now. Well, there are several reasons, and the IRS has highlighted these ones:
- when you have a new job
- when there is other paid work
- when there is a significant income change
- when taxpayers get married
- when taxpayers have a child or adopt a child
- when you buy a home
Why should you update your tax withholding in April 2025? For your information, it can protect against having too little tax withheld. So, it will prevent you from facing an unexpected tax bill or penalty at tax time in 2026.
Also, it will let you adjust your tax withheld up front. Hence, you receive a bigger paycheck and a smaller tax refund next year when the tax season starts and you file.
