Tax Law and News Help your clients avoid tax-time surprises Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Intuit Accountants Team Modified Aug 28, 2024 3 min read No one wants a surprise, especially a tax surprise. Now is a great time to help your clients make tax withholding or payment updates to avoid a potential surprise for tax year 2024. 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 include: • Gig economy workers.• Those with a “side hustle.”• Anyone earning income not subject to withholding. 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 to help align tax withholding or tax payments with what is owed. Of course, it’s up to you, the tax practitioner, to help your clients with tax planning. 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 clients, including those in the gig economy, those with more than one job, and those with major changes in their life, such as a recent marriage or a new child. The IRS encourages taxpayers to use the IRS Tax Withholding Estimator to help better align their tax withholding or tax payments with what they owe. This handy tool helps figure the amount of federal income tax paid 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. See how a refund, take-home pay, or tax due are affected by withholding amounts. If there’s a major life change such as a new job or other paid work, major income change, marriage, childbirth or adoption, and/or new home purchase or home sale. Choose an estimated withholding amount that works for them and their family. If a withholding change is needed once the tool is used, 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. 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. Previous Post Guide to energy and clean vehicle tax credits Next Post Safeguards Rule and cybersecurity leadership Written by Intuit Accountants Team The Intuit® Accountants team provides ProConnect™ Tax, Lacerte® Tax, ProSeries® Tax, and add-on software and services to enable workflow for its customers. Visit us at https://proconnect.intuit.com, or follow us on Twitter @IntuitAccts. More from Intuit Accountants Team Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment * Name * Email * Website Notify me of new posts by email. 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