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Issue Number: IR-2024-225Inside This IssueIRS encourages people to do an end-of-summer tax checkup to avoid tax surprises next year IR-2024-225, Aug. 27, 2024 WASHINGTON – The Internal Revenue Service today encouraged taxpayers to consider using the end of the summer to make tax withholding or payment updates to avoid a potential surprise next year at tax time. While most taxpayers get a refund after filing their taxes, many also find they unexpectedly owe taxes. This can be due to a life or job change for which they did not make the necessary tax adjustment during the year. Those who should be especially careful are: • Gig economy workers. These individuals should check the amount they pay, or the amount of tax they have withheld throughout the year, to bring the tax they pay closer to what is owed. The IRS has a special Tax Withholding Estimator that can help taxpayers align their tax withholding or tax payments with what they owe. The IRS reminds taxpayers that tax planning done now can save time and frustration later. Here are some important things to keep in mind: How refunds work The federal tax system is pay-as-you-go. Taxpayers pay tax as they earn wages or receive income during the year. For many, taxes are withheld from their paycheck by their employer and then given over to the IRS on their behalf. Others, such as gig economy workers, make or should make quarterly estimated tax payments throughout the year to stay current. A refund normally results when too much is withheld or paid throughout the year. Recent IRS statistics show that two-thirds of taxpayers received a refund so far in 2024. As of mid-May, nearly $270 billion in refunds went to taxpayers with the average refund just under $2,900. Avoid an unexpected bill On the other hand, many taxpayers end up with estimated tax penalties because they underpay throughout the year. The penalty amount varies but for some it can be several hundred dollars. Adjusting withholding on paychecks or the amount of estimated tax payments can help prevent penalties. This is especially important for self-employed people, including those in the gig economy, those with more than one job and those with major changes in their life, like a recent marriage or a new child. With that in mind, the IRS encourages taxpayers to use the IRS Tax Withholding Estimator this summer to help better align their tax withholding or tax payments with what they owe. Tax Withholding Estimator This handy tool on IRS.gov helps people figure the amount of federal income tax they should pay during the year. All that’s needed for taxpayers to use it are paystubs for all their jobs or other income information, such as from side jobs, self-employment or investment income, and a copy of their 2023 tax year return. People can use the Tax Withholding Estimator to: • Estimate their federal income tax withholding. If a withholding change is needed upon completion, taxpayers should adjust their withholding by submitting a new Form W-4 to their employer or pension provider. They can also adjust quarterly estimated tax payments as appropriate. IRS also reminds people to use the Tax Withholding Estimator if there’s a major life change such as a: • New job or other paid work. While the Tax Withholding Estimator works for most taxpayers, people with more complex tax situations should instead use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe Alternative Minimum Tax or certain other taxes, and people with long-term capital gains or qualified dividends. Additional information • Tax Withholding Estimator FAQs
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