The IRS just released the new Tax Withholding Estimator that is intended to replace the old Withholding Calculator. The new Tax Withholding Estimator includes user-friendly features that is tailored to help retirees quickly and easily calculate the correct amount of tax that should be taken from their pension payments and Social Security benefits.
The new Tax Withholding Estimator will also benefit employees and self-employed individuals with a user-friendly way to check their withholding. Whether they receive wages or pension payments, it helps taxpayers estimate if the right amount is being withheld from their income to cover their tax liability. The tool uses a simple, six-step question-and-answer format using information like marital or filing status, income, withholding, adjustments, deductions and credits.
A retiree can use the Tax Withholding Estimator to enter any pension income or Social Security benefits they or their spouse receive. The tool then automatically calculates the taxable portion and incorporates it into an overall estimate of their projected tax liability and withholding for the year. If a withholding change is needed, the retiree can choose a tax due of close to zero or a refund amount. The tool will then link to Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give the retiree a specific withholding recommendation based on the option chosen. It also gives instructions on how to fill in each line of the form.
The enhancements for retirees are just a few of the many new features offered by the Tax Withholding Estimator. Others include:
- Plain language to improve taxpayer understanding.
- Mobile-friendly design.
- A new progress tracker to help taxpayers know how much more information they need to enter.
- The ability to go 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.
- Automatic calculation of taxes on self-employment income.
The IRS urges both pension recipients and wage-earners to do a Paycheck Checkup now and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or penalty when they filed earlier this year. It’s also a critical step for those who made withholding adjustments in 2018 or had a major life change, such as marriage, the birth of a child, adoption or buying a home.
People most at risk of having too little tax withheld include those who itemized in the past, but now take the increased standard deduction. They also include households with two wage earners, employees with non-wage sources of income and those with complex tax situations.
Also, anyone who changes their withholding in the middle or latter part of this year should do another Paycheck Checkup in January. That will help ensure that they have the right amount of tax withheld for all of 2020.
