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Give Withholding and Payments a Check-up to Avoid a Tax Surprise

Categories Tax Tips (Fed)

Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.

Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.

Wages and Income Tax Withholding

  • New Job.   Your employer      will ask you to complete a Form W-4, Employee’s Withholding Allowance      Certificate. Complete it accurately to figure the amount of federal income      tax to withhold from your paychecks.
  • Life Event.  Change your Form      W-4 when certain life events take place. A change in marital status, birth      of a child, getting or losing a job, or purchasing a home, for example,      can all change the amount of taxes you owe. You can typically submit a new      Form W–4 anytime.
  • IRS Withholding      Calculator.  This handy online tool will help you figure the      correct amount of tax to withhold based on your situation. If a change is      necessary, the tool will help you complete a new Form W-4.

Self-Employment and Other Income

  • Estimated tax.  This is how you pay tax      on income that’s not subject to withholding. Examples include income from      self-employment, interest, dividends, alimony, rent and gains from the      sale of assets. You also may need to pay estimated tax if the amount of      income tax withheld from your wages, pension or other income is not      enough. If you expect to owe a thousand dollars or more in taxes and meet      other conditions, you may need to make estimated tax payments.
  • Form 1040-ES.  Use the worksheet      in Form 1040-ES, Estimated Tax for Individuals, to find out if you need to      pay estimated taxes on a quarterly basis.
  • Change in Estimated      Tax.       After you make an estimated tax payment, some life events or financial      changes may affect your future payments. Changes in your income,      adjustments, deductions, credits or exemptions may make it necessary for      you to refigure your estimated tax.
  • Additional Medicare      Tax.       A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9      percent Additional Medicare Tax applies to an individual’s wages, Railroad      Retirement Tax Act compensation and self-employment income that exceeds a      threshold amount based on the individual’s filing status. For additional      information on the Additional Medicare Tax, see our questions      and answers.
  • • Net Investment Income Tax.       A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8      percent Net Investment Income Tax applies to individuals, estates and      trusts that have certain investment income above certain threshold      amounts. For additional information on the Net Investment Income Tax, see      our questions      and answers.

See Publication 505, Tax Withholding and Estimated Tax, for more on this topic. You can get it at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

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