The IRS reminded taxpayers who earn wages to use the Tax Withholding Estimator tool to adjust their 2023 withholding. Checking now and making necessary adjustments early in the year may help taxpayers avoid the need for quarterly estimated tax payments. Further, having a second job or non-wage income from unemployment, self-employment, annuity income, the gig economy or digital assets may require taxpayers to make quarterly estimated tax payments to avoid a balance due when they file. Additionally, various financial transactions, especially late in the year, can have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency and real estate or other property sold at a profit.
The Tax Withholding Estimator, also available in Spanish, can help wage earners determine if they have too much or too little tax withheld. Taxpayers may use the estimate to change their withholding amount and submit a new Form W-4, Employee’s Withholding Certificate, to their employer. The tool offers those who earn wages step-by-step help for tailoring the amount of income tax they should have withheld from their paycheck. Further, the IRS advised taxpayers to make tax payments electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). If paying by check, taxpayers should make the check payable to the “United States Treasury”.
Finally, the IRS provided some tools informing taxpayers how to make withholding adjustments due to unforeseen life events and other scenarios. This included tips for using the IRS Tax Withholding Estimator, special tax law provisions when the federal government declares their location a major disaster area and information about Form W-4, among other things.