The Internal Revenue Service (IRS) reminds taxpayers of the importance of reviewing their tax withholdings promptly. Making the necessary adjustments at the beginning of the year can help avoid surprises when filing taxes for the following fiscal year.

Why is it important to review retention?

Tax withholding is the system by which federal taxes are paid as income is received. For employees, it refers to the portion of the tax the employer deducts from each paycheck. For self-employed individuals or those with other sources of income, it involves voluntarily setting aside a portion of their earnings to pay estimated taxes.

If withholding isn't adequate, taxpayers may end up owing money when they file their return or receiving a larger refund than necessary, which may mean they were lending the government money without interest during the year.

The Tax Withholding Estimator

El Tax Withholding Estimator The IRS Taxpayer Checklist is a free online tool designed to help workers, independent contractors, and retirees determine if they are having the correct amount of federal income tax withheld. This tool allows for accurate adjustments and helps avoid unexpected debts or excessive refunds.

After using the estimator, taxpayers can determine whether they must file a new return. Form W-4 to your employer or adjust the amounts set aside for estimated payments.

Adjusting retention can allow:

• Avoid tax debts and penalties when filing your return.
• Increase your monthly net income instead of waiting for a refund at the end of the year.

How often should it be used?

The IRS recommends that taxpayers use this tool at least once a year, especially if they have experienced significant changes in their personal or financial lives, such as:

• A new job or change in salary.
• The birth of a son.
• Buying a home.
• A change in marital status.

Those who recently filed their 2024 tax return should consider using the Estimator, as this tool takes into account multiple sources of income, including side jobs and sales reported through the Form 1099-K.

Necessary documents

For accurate results, the IRS recommends having the following information on hand:

• Current income statements (including spouse's if filing jointly).
• Data from other sources of income.
• Copy of the most recent tax return.

For more complex tax situations, such as when you are subject to the alternative minimum tax or receive long-term capital gains or qualified dividends, the IRS recommends consulting the Publication 505, “Tax Withholding and Estimated Tax” (in English).

For more official information, visit: www.irs.gov