New IRS calculator can divert surprises
The Internal Revenue Service has just introduced a new and highly improved online calculator that will make it much easier to get the right amount of federal tax withheld from your paycheck and avoid the surprises that many people faced when they did their 2018 taxes.
The need for a better calculator increased greatly after Congress passed sweeping tax law changes that took effect in 2018, but didn’t change the W4 forms that tell employers how much federal tax to withhold from employee paychecks. The IRS urged taxpayers to submit a new W4 form last year, but the clunky old calculator was so complicated as to be nearly useless.
The new version, which the IRS calls a tax withholding estimator, “is an amazing improvement over the past,” said Eva Rosenberg, an enrolled agent who operates the website
TaxMama.com.
“The old version flatout didn't work for married couples when they both worked,” she said. The new one asks about each spouse’s income independently, and takes into account things like bonuses, selfemployment income and Social Security of one or both spouses. It asks about how much tax has been withheld to date, and how often you get paid, so the calculator can extrapolate total projected withholding for the year.
When you’re done entering the information, it estimates your federal 2019 refund or balance due, based on your income and how much you’ve already had withheld. Then it asks if you want to adjust withholding to get that number down to a lower refund or lower balance due.
“When you're done it makes recommendations on how to change each spouse’s W4,” Rosenberg said.
To use the calculator, you’ll need to have your latest paycheck handy, and it may help to have last year’s tax return to estimate income from investments or a side job.
The IRS said the new calculator also incorporates these elements: plain language to improve comprehension; the ability to move 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; selfemployment tax for people with selfemployment income; and the automatic calculation of the taxable portion of any Social Security benefits.
Tax pros say they have always helped their clients get the right amount withheld, but if you’re a doityourselfer, the new calculator is worth a try — especially if you’ve had taxtime surprises. To find it, go to irs.gov/individuals/ ir st ax with holdingestimator.
The IRS will have to revamp the calculator again next year. It plans to create a new wagewithholding system and W4 form for use beginning in 2020, but it’s expected to be optional for existing employees and mandatory for new hires and existing workers wanting to make a change.