Avoid Tax Surprises Next Year: Check Your Tax Withholding

Hello from Freedom Tax Accounting. We’re an accounting firm where we have been providing quality tax and accounting services for over 20 years now. In this video, we’re going to talk about getting ready and revising your withholding plan in order to be ready for next tax season.

The Internal Revenue Service is advising taxpayers to use the end of summer as an opportunity to review and update their tax withholding or payment plans to avoid surprises next year. While a lot of taxpayers receive refunds, others unexpectedly end up owing taxes due to life or job changes for which they haven’t made the proper adjustments. Particularly people that need to pay attention to this are gig economy workers, those who have side jobs or individuals with income that is not subject to withholding. These taxpayers should review their payments and withholdings to make sure that they can adjust their tax liability. And the IRS offers a tax withholding calculator to make sure that you can assess and calculate how much withholding you should have so that it can compare to what you actually owe. This is going to actually save you a lot of time and frustration later. So it is definitely worth your time to go onto their webpage and find out. 

The U.S. tax system operates on a pay-as-you-go basis.

Most people have taxes withheld from their paycheck from their employer who then sends that money to the IRS. Other people that work gigs, they should make their own estimated quarterly payments because nobody’s withholding that money. Typically people get refunds if too much was withheld or paid throughout the year.

Recent IRS data shows that two-thirds of taxpayers received refunds in 2024 with nearly 270 billion dollars issued and an average refund of about $2,900. 

Conversely, there are some taxpayers that face estimated tax penalties because they underpaid or they didn’t make them. And these penalties can be significant, they can amount to hundreds of dollars. So, adjusting it or making estimated payments can help you avoid these payments or having to pay additional money to the IRS. And this is crucial for the self-employed, those that have multiple jobs or those experiencing major life changes. The IRS encourages taxpayers to use the tax withholding estimator this summer to better align their withholding or estimated payments with their actual tax obligations.

So if you go to irs.gov, it’s available there. This tool can help you determine the appropriate amount of federal income tax to pay throughout the year. To use it, you’re going to need the most recent pay stuff from all of your jobs, any information from any side jobs or investments, and a copy of your 2023 tax return. The estimator is going to allow you to estimate how much federal income tax withholding you’re going to need. See how the withholding is going to affect your refund or your take-home pay or the taxes that you’re going to owe. And it’s also going to help you choose an amount that fits your need.

If you need to make any adjustments, you can fill out a new W-4 form and hand that to your employer, or you can adjust your estimated payments. For more significant life changes like maybe starting a new job or significant income change, marriage, childbirth, adoption, buying a new home, using the estimator can help you stay closer to the right track. If your situation is more complex, please consult with Publication 505, which handles the tax withholding and estimated payment section.

Or of course, contact us at 407-344-1012. Here at Freedom Tax, we are here to help you at any time. You can schedule a consultation and we can go over your particular tax situation.

I hope you have received valuable information from this video. If you have, of course, like the video and share it with other business owners that you think would benefit from it. 

And remember that we are Freedom Tax Accounting. We are a full-service accounting firm and we can help you with anything from personal taxes, corporate taxes, opening up an LLC, bookkeeping, payroll. We can help you in many, many ways.