IRS offers new tax withholding estimate tool

The Internal Revenue Service is replacing its old online tax withholding calculator with a new Tax Withholding Estimator that it says will make it easier for taxpayers to determine how much in taxes they should withhold from their paychecks next year.

The move comes after widespread complaints from many taxpayers this year that they ended up unexpectedly owing taxes to the IRS after passage of the Tax Cuts and Jobs Act at the end of 2017. In many cases, the problem stemmed from taxpayers not adjusting the withholding for their paychecks because the tax overhaul eliminated the traditional personal and dependent exemptions. The IRS had publicized the need last year to go online and do a “paycheck checkup” using the online tax withholding calculator to adjust their withholding, but the process was cumbersome and confusing, and relatively few taxpayers followed the IRS’s advice.

The IRS is hoping to make the process easier this year, while also planning to make some changes in its withholding forms. The new Tax Withholding Estimator that debuted Tuesday provides workers, retirees, self-employed people and others a step-by-step tool for figuring the amount of income tax to withhold from their paychecks and pension payments.

IRS Commissioner Charles "Chuck" Rettig
IRS Commissioner Charles Rettig

“The new estimator takes a new approach and makes it easier for taxpayers to review their withholding,” said IRS Commissioner Chuck Rettig in a statement. “This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships.”

The IRS said it listened to the feedback and concerns of taxpayers and tax professionals to develop the Tax Withholding Estimator. Its features include:

  • Plain language throughout the tool to enhance comprehension;
  • The ability to target at the time of filing either a tax due amount close to zero or a refund amount;
  • A new progress tracker to help users see how much extra information they have to enter;
  • The ability to move back and forth through the steps, fix prior entries and skip questions that don’t apply;
  • Improved tips and links to help users find out if they qualify for different tax credits and deductions;
  • Self-employment tax for a user who has self-employment income along with wages or pensions;
  • Automatic calculation of the taxable part of any Social Security benefits;
  • A mobile-friendly design.

On top of that, the new Tax Withholding Estimator makes it simpler to input wages and withholding for each job held by taxpayers and their spouses, along with separately entering pensions and other sources of income. At the end of the process, the estimator offers specific withholding suggestions for each job and each spouse and explains what taxpayers should do next in the process.

As it did last year, the IRS is urging every taxpayer to do a paycheck checkup and review their withholding for 2019, especially those who confronted an unexpected tax bill or a penalty when they filed this year. The new estimator is also important for those who made withholding adjustments in 2018 or had a major life change. Tax professionals can also use it to help their clients avoid surprise tax bills next year.

Those who are most at risk of having too little money in taxes withheld from their paychecks include those who itemized in the past but now take the increased standard deduction, along with dual-wage-earner households, employees with non-wage sources of income and people with complicated tax situations.

To access the tool, visit the Tax Withholding Estimator on IRS.gov.

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