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IRS to Self-Employed Taxpayers: Use the Tax Withholding Estimator

According to the IRS, self-employed taxpayers should use the Tax Withholding Estimator when they perform their next “paycheck checkup.”

IR-2019-149 is the latest press release advertising the Tax Withholding Estimator, the agency’s newest online tool: “The estimator is an expanded, mobile-friendly online tool that replaced the Withholding Calculator, which since 2001 had offered workers an online method for checking their withholding.”

The IRS stressed that they needed to develop a new resource to help even more taxpayers manage their tax withholding: “The old calculator lacked features geared to self-employed individuals; the new estimator made changes to address this important group.”

Why Should Taxpayers Perform a Paycheck Checkup?

Tax withholding outreach was a focus of the IRS due to the implementation of the Tax Cuts and Jobs Act. As the IRS explains in Publication 5307, “the Tax Cuts and Jobs Act changed the way taxable income is calculated and reduced the tax rates on that income.” That meant “the IRS had to address and make changes to income tax withholding in response to the new law as soon as possible after it passed.”

Despite a year-long series of press releases reminding taxpayers that they might need to adjust withholding to address these changes, some tax professionals reported clients seeing surprise tax bills. Using the Tax Withholding Estimator is just one way taxpayers can avoid that problem, and accessing it is relatively easy.

How Does the New Tax Withholding Estimator Help Self-Employed Taxpayers?

The Tax Withholding Estimator helps self-employed taxpayers calculate their withholding by letting them enter information that wasn’t accepted by the old calculator: “The estimator allows a user to enter any self-employment income, including income from side gigs or the sharing economy, in addition to wages or pensions.”

Those who regularly used the old IRS Withholding Calculator will notice a number of improvements when they pull up the new Tax Withholding Estimator. Here’s the list provided by the IRS:

  • Plain language throughout to improve taxpayer understanding.
  • The ability to target either a tax due amount close to zero or a refund amount.
  • A new progress tracker to help a user know how much more information they need to enter.
  • The ability to go back and forth through the steps, correct previous entries, and skip questions that don’t apply.
  • Tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Automatic calculation of the taxable portion of any Social Security benefits.

Taxpayers concerned that they won’t pick the correct withholding form after getting the results of the estimator don’t need to worry. The IRS said that users will be given a link to the form corresponding to their entered information—Form W-4 for employees or Form W-4P for pensioners.

Source: IR-2019-149

Story provided by TaxingSubjects.com

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