Tax Planning – Paycheck Checkup
With the change of seasons and start of the traditional school year, it’s a good time to
review your tax planning, and a Paycheck Checkup is an important part of that.
What is a Paycheck Checkup?
A Paycheck Checkup is a review of your tax withholding. Making sure the proper
amount of tax is being withheld from your paychecks will ensure you have no tax-time
surprises. Income tax is a pay-as-you-go system, and underpaying during the year can
result in taxes owed, and even penalties, when you file your tax return.
How To Do a Paycheck Checkup
The easiest way to do a Paycheck Checkup is to use the IRS’ Tax Withholding
Estimator . The Estimator will use information from a recent pay stub and your latest tax
return to estimate what should be withheld from current paychecks. The Estimator does
not save any of the information, nor does it ask for personally identifying information
such as social security or tax identification numbers.
What If the Withholding Is Wrong?
If you find the incorrect amount is being withheld from your paychecks, you could end
up loaning a lot of money, interest-free, to the government. This means too much is
being withheld, your paychecks are less, and you get a large tax refund. A large refund
might feel like a nice yearly boost, but it’s not the best management of your income.
If too little is being withheld, you could end up owing the IRS for your taxes (and even
penalties, in some cases). This would obviously be an unwelcome situation.
How To Change Withholding
Taxpayers who find their withholding should be changed need to ask their employer for
a Form W-4 (or print one here and submit it to their employer).
Those who have recently gotten married, divorced, had a child, gotten a raise, or begun
a side job should especially do a Paycheck Checkup, and end the year prepared for tax