IRS Tax Withholding Estimator Could Help Prevent You From Owing Future Taxes

A Hispanic man in his late fifties sits on a bench at his dining room table and holds some paperwork in his hands as he works on his laptop computer.
DNY59 / Getty Images/iStockphoto

The IRS recommends that anyone finishing up their 2021 income tax return use the IRS Tax Withholding Estimator to make sure the right amount of tax is taken out in 2022. The online tool can be used by workers, self-employed individuals and retirees who have wage income.

Explore: 22 Side Gigs That Can Make You Richer Than a Full-Time Job
See: 16 Budgeting Tips Every Single Woman Needs To Know

Results from the Tax Withholding Estimator can be used by employees to determine if they should complete a new Form W-4 and submit it to their employer. Form W-4 tells the employer the correct amount of federal tax to withhold from an employee’s paycheck.

The IRS said that checking withholding can prevent an unexpected tax bill or penalty and determine whether to have less tax withheld up front or a bigger refund at tax time. The IRS also advised using this tool at least once each year, such as after you file your tax return or following major life events, such as marriage, divorce, home purchase or the birth or adoption of a child.

Before using this tool, make sure you have your most recent pay statements, information for other sources of income and your most recent tax return. If you’re married, make sure you have this information for your spouse, as well.

Make Your Money Work

For those with more complex tax situations, follow the instructions in Publication 505, Tax Withholding and Estimated Tax. According to the IRS, this includes those who owe alternative minimum tax or certain other taxes and people with long-term capital gains or qualified dividends.

POLL: Where Have You Cut Back Most Because of Inflation?
Find: Child Tax Credit, Stimulus Big Reasons Behind Tax Refund Increase

If you have a pension but no job, estimate your tax withholding with the new Form W-4P. If you have a nonresident alien status, use Notice 1392, Supplement Form W-4 Instructions for Nonresident Aliens.

Share this article:

Make Your Money Work

About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based out of Ohio where she attended The Ohio State University and lives with her two toddlers and fiancé. Her work has appeared in print and online publications such as Fox Business and Scotsman Guide.
Learn More