After a tumultuous year that has upended traditional employment, millions of Americans could face income-tax surprises. One way to reduce the odds of owing a big bill to Uncle Sam — or paying out too much and thus giving an interest-free loan to the government — is to check your withholding.
More than a year ago, the Internal Revenue Service released a redesigned form W-4 on which taxpayers figure how much money they should withhold from their paychecks. Most taxpayers so far appear to have ignored it.
Three in four individuals received refunds last year that averaged $2,500 per recipient — that’s an interest-free loan to the government that could certainly get put to a better use.
Much has changed in the past year, including job losses and taxable unemployment benefits for some people, taxable retirement-account withdrawals, overtime or extra-hours pay for workers in many essential industries and a volatile stock market that spewed out capital gains and losses.
New employees fill out W-4s when starting a job but often neglect to update their information after that. Updates aren’t required, and 45% of respondents in a recent survey reported that they didn’t remember when they last revised their information.
One in nine taxpayers said they had never heard of W-4s, according to the survey released by the Harris Poll and American Institute of Certified Public Accountants.
Updates aren’t especially difficult or time-consuming. Now could be a good time to do it, with a full year of salary, withholding and other information to review. A tax withholding calculator provided by the Internal Revenue Service is worth completing first. It can be found at https://www.irs.gov/payments/tax-withholding…Read more>>