There are only about two months left in 2022, but some quick action now on how much money is withheld from your paychecks and other payments such as your pension might save you from a big 2022 tax bill.
As you know, most taxpayers get a refund each year from the IRS. In general, about 70% to 75% of taxpayers get a refund. This past year, the average refund was about $3-thousand per taxpayer.
But that leaves about one out of four taxpayers who have to pay the IRS when they file their tax return each year.
WITHHOLDING IS ENOUGH FOR MOST TAXPAYERS
If you are an employee, your employer probably withholds income tax from your pay, and as we mentioned, for about 70% to 75% of taxpayers that withholding is sufficient to cover their yearly tax bill. Tax may also be withheld from certain other income including pensions, Social Security payments, bonuses, commissions, and sometimes even casino gambling winnings.
But sometimes that withholding is not enough to cover the annual tax liability. If you are a taxpayer who usually owes more tax money to the IRS at tax-filing time, this is the time to change your withholding amounts so you don’t have to pay the IRS or you’ll pay the IRS less than what you’ve paid in the past.
YOUR TAX REFUNDS MIGHT BE TOO BIG
People owing tax money to the IRS aren’t the only ones who should be checking their withholding. Taxpayers who usually get a big refund should check their tax withholding as well.
Also note that if you are one of those taxpayers who always gets a refund when you file your tax return, changing your withholding now could give you more take home pay throughout the year instead of waiting for a refund after you file.
Getting more take-home money may make more sense today because the IRS still has about 6-million individual tax returns that haven’t been processed yet, and some taxpayers have been waiting six months to a year or even longer for a tax refund. Why wait for a refund once a year when you can have extra money every week or every month when you receive your payments.
And with money tight because of inflation, waiting for a refund is something that isn’t very appealing right now.
But if you need “forced savings” then getting a big refund each year might be right for you. Some folks just can’t budget and they intentionally have their tax “over withheld” so the IRS gives them the discipline they don’t have themselves. And there’s nothing wrong with forced savings if that’s the only way you can save.
CHECK YOUR TAX WITHHOLDING WHILE THERE’S TIME
So the message today is to check your tax withholding while there’s time left in 2022 to make a difference in your 2022 taxes paid, and in your expected tax bill in 2023. Adjusting your tax withholding now just might prevent a big tax bill in 2023, or it might give you more take-home money now instead of you waiting for a big refund in 2023.
REASONS WHY YOUR WITHHOLDING MAY NEED TO BE UPDATED
There are all sorts of reasons your tax withholding may need to be updated. You might have gotten married or plan to be married. There may be a new child in your family. You might have changed your career and entered the gig economy. You might have had a lucky windfall at the casino. Giving yourself a tax withholding check-up can’t hurt and it will help you understand your budget for the months ahead.
USE THE TAX WITHHOLDING ESTIMATOR
The IRS publishes on its website a Tax Withholding Estimator. Use this tool to check your tax situation. Once you give yourself a tax withholding check-up and you find changes are needed you’ll need to notify your employer and other payers of your desire to have changes made in what they withhold from your payments.
In a worst case scenario, changing your take-home pay won’t be enough and you might have to make one more more quarterly tax payments to the IRS to reduce your expected tax liability.
You should discuss your personal tax situation with a tax professional and maybe even a financial planner who might give you tips about changing your withholding as your life changes.
TALK OVER YOUR WITHHOLDING SITUATION
Every family will have different reasons and different needs when it comes to tax withholding. It not only affects your taxes but also your family budget. So discuss this with your family and your tax professional. The tax experts in our office are happy to answer your questions in a free consultation. We can also discuss your tax debt situation and ways to resolve it using the IRS Fresh Start and Offer In Compromise Programs.
And please continue to use our website for free information about the latest from the IRS. Our website is free to use with no membership fees.
And please make the call to discuss your tax issues with one of our tax professionals. It’s a free call and a free consultation and we’re ready to help.