Test Your Knowledge of the IRS Tax Withholding Estimator
In response to taxpayer concerns, the IRS released the Tax Withholding Estimator. This tool allows you to view and evaluate your withholding amounts in minutes to help you determine if they’re on the right track or if any changes are needed.
Question: True or False?
The IRS Tax Withholding Estimator will calculate whether you will owe money or receive a refund for the current tax year, based on the information you enter.
The Tax Withholding Estimator will calculate what you can expect to owe in taxes or receive in a refund for the current tax year. In addition to this information, the tool provides a slider that shows what you must do in order to increase or decrease the amount of your refund.
Based on your selection, the tool will provide a link to a new Form W-4 and explain how to fill it out. Once you complete the form, you can give it to your employer, and your paycheck withholdings will be adjusted accordingly.
What documents does the IRS recommend gathering before beginning to use the Tax Withholding Calculator?
The IRS recommends gathering the following documents before using the Tax Withholding Estimator:
• Recent pay stubs
• Most recent income tax return
Be ready to answer questions about your tax filing status, dependents, pretax contributions (such as retirement or medical accounts), other sources of income, and tax credits. The tool will take you through some questions that will vary depending on whether you itemize or claim the standard deduction.
If you plan to itemize deductions, be sure to gather information on the following expenses:
• Medical and dental
• Taxes paid
• Qualified mortgage interest paid
• Gifts to charity
• Casualty losses
• Other expenses that could be deducted
The Tax Withholding Estimator will not ask for personal identification information, such as name, date of birth, social security number, or bank account numbers, nor will it save data entered. It is a single-use calculator.
If you make changes to your withholdings, the IRS recommends reviewing your selections again in 2021.