The IRS just made its tax-withholding calculator actually useful

Old_Joe

The following information is from a current article by Kathleen Pender, in the San Francisco Chronicle. It has been very slightly edited for brevity.

The Internal Revenue Service has just introduced a new and highly improved online calculator that will make it much easier to get the right amount of federal tax withheld from your paycheck and avoid the surprises that many people faced when they did their 2018 taxes.

The need for a better calculator increased greatly after Congress passed sweeping tax law changes that took effect in 2018, but didn’t change the W-4 forms that tell employers how much federal tax to withhold from employee paychecks. The IRS urged taxpayers to submit a new W-4 form last year, but the clunky old calculator was so complicated as to be nearly useless.

The old version flat-out didn't work for married couples when they both worked. The new one asks about each spouse’s income independently, and takes into account things like bonuses, self-employment income and Social Security of one or both spouses. It asks about how much tax has been withheld to date, and how often you get paid, so the calculator can extrapolate total projected withholding for the year.

When you’re done entering the information, it estimates your federal 2019 refund or balance due, based on your income and how much you’ve already had withheld. Then it asks if you want to adjust withholding to get that number down to a lower refund or lower balance due. When you're done it makes recommendations on how to change each spouse’s W-4.

To use the calculator, you’ll need to have your latest paycheck handy, and it may help to have last year’s tax return to estimate income from investments or a side job.

The IRS said the new calculator also incorporates these elements: plain language to improve comprehension; the ability to move back and forth through the steps, correct previous entries and skip questions that don’t apply; tips and links to help users quickly determine if they qualify for various tax credits and deductions; self-employment tax for people with self-employment income; and the automatic calculation of the taxable portion of any Social Security benefits.

Tax pros say they have always helped their clients get the right amount withheld, but if you’re a do-it-yourselfer, the new calculator is worth a try — especially if you’ve had tax-time surprises. To find it, go to this link:

Tax Withholding Estimator

The IRS will have to revamp the calculator again next year. It plans to create a new wage-withholding system and W-4 form for use beginning in 2020, but it’s expected to be optional for existing employees and mandatory for new hires and existing workers wanting to make a change.