It is important to check your withholding and election status early in the year, especially when tax laws change. If you are unsure whether you need to change your withholding amount, contact a WFA Tax Advisor today. Visit the Internal Revenue Service website to Use the Tax Withholding Estimator tool.
What Is Tax Withholding?
If you’re an employee, your employer probably withholds income tax from your paycheck and pays it to the IRS and state taxing authority in your name.
What Is Estimated Tax?
If you don’t pay your taxes through withholding, or don’t pay enough tax that way, you may have to pay estimated tax. People who are self-employed generally pay their tax this way.
Check Your Withholding
Avoid a surprise at tax time and check your withholding amount. Too little can lead to a tax bill or penalty. Too much can mean you won’t have use of the money until you receive a tax refund. A quick test is to compare (1) the ratio of tax withheld to taxable earnings on your paystub and (2) the effective tax rate on your recent tax return.