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Tips on using a tax withholding calculator

The Federal income tax system operates on a “pay-as-you-go” basis. You can pay your Federal income tax in two ways: estimated tax or tax withholding. Your employer most likely withholds income tax from your paychecks. Tax is withheld by the employer if you are working in income fields like bonuses, pensions, and commissions. The tax that your employer withholds is sent to the IRS on your behalf; these funds are applied to your Medicare, Social Security, and income taxes for the year. The amount that is withheld by each category is reported on your Form W-2; you will receive this form from your employer. The amount of tax withheld from the regular pay of a person depends on two factors: how much money does the person making and the information that is given by the employer on the Form W-4.

If the amount of tax withheld from your pay during the year is a lot, you will receive the overpayment as a tax refund after you have filed your tax return. However, if you have withheld little tax, you may have to make an estimated payment of your tax or you may be subjected to an underpayment penalty. Usually, Estimated Tax payments are paid quarterly in four installments. According to the IRS, you may incur a tax penalty if the amount of your total payments (including withholding and estimated tax) is not equal to at least 90% of your tax liability of the year or 100% of the tax of the prior year, whichever amount is less.

The tax withholding calculator is the new convenient feature offered by the IRS on their official website. The new online tax withholding calculator helps you to do your tax planning beforehand. Whether the correct amount of money is withheld by employers from paychecks can be determined by the tax withholding calculator. Below are some directions for using the tax withholding calculator provided by the IRS:

Keep a copy of previous years’ tax returns
A copy of your complete 2017 tax return, and even 2016 if possible, coms in handy. The information of the return will help you estimate the income and other items for 2018. However, it is necessary to consider the changes that are made in the new tax laws when it comes to itemized deductions.

No request for personal identification information
There is no personal identification information request by the tax withholding calculator, like your Social Security Number, bank account number, or address. The information that is entered on the tax withholding calculator on the official IRS website is not recorded or saved. This is important to know as you need to be careful regarding tax scams that you may receive via email, text, or phone calls. There are many cybercriminals impersonating the IRS and asking for personal information. Know that the IRS does not send emails, phone calls, or texts related to the information entered by you in the tax withholding calculator.

Check the number of withholding allowances
The general rule that is usually followed is that the fewer withholding allowances you enter on the Form W-4, the higher will be your tax withholding. Entering 0 or 1 on the line of 5 of the Form W-4 signifies that more tax will be withheld. When you enter the bigger numbers, it ensures that less tax is being withheld. Less tax withholding results in a smaller tax refund or a potential tax penalty or bill.

Know what the results of the tax withholding calculator determine
You can simply use the result from your tax withholding calculator to determine whether you should complete a new Form W-4, and if so, what information is needed to be added in the form. You do not need to complete the worksheets that accompany Form W-4 if you have already used the tax withholding calculator.

Submit your new Form W-4 as soon as possible
Once you have completed a new Form W-4, you should submit your new Form W-4 to your employer as soon as possible. As withholding happens throughout the year, it’s better if you the earlier you take this step.

Collect your most recent pay stub from work
When you receive your most recent pay stub from work, ensure that it reflects the amount of Federal income tax that you have withheld in 2018 so far. When you are using the tax withholding calculator, you need to ensure that the right amount is entered.

Store the results of the tax withholding calculator
When you have entered your accurate information, ensure that you store the tax results given by withholding calculator. If there are any changes in your circumstances during the year, come back to the calculator and calculate your correct tax withholding.

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