As the summer winds down, the IRS is urging taxpayers to review and update their tax withholding or estimated payments to prevent unexpected tax bills next year. HR departments may want to advise employees of the importance of checking tax status.
Many individuals, particularly those in the gig economy, with side jobs, or earning income not subject to withholding, may find themselves owing taxes if they don’t adjust their payments throughout the year. The IRS highlights the importance of using the IRS Tax Withholding Estimator tool to help taxpayers align their withholding or estimated payments with their actual tax liability.
The federal tax system operates on a pay-as-you-go basis, meaning taxes are paid as income is earned throughout the year. While most taxpayers receive refunds, many end up owing money because they didn’t adjust their withholding after a life or job change. The IRS notes that nearly two-thirds of taxpayers received refunds in 2024, with the average refund being just under $2,900. However, some taxpayers incur penalties for underpaying throughout the year, which can often be avoided by adjusting their withholding or estimated tax payments.
HR should remind employees of the Tax Withholding Estimator and suggest that they use the tool now, especially if they’ve experienced significant life changes like a new job, marriage, or the birth of a child. This tool can help estimate the correct amount of tax to withhold, ensuring that taxpayers avoid underpayment penalties and large tax bills come tax season. Proper tax withholding now can avoid stress later. To access the Tax Withholding Estimator, click here.
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