Financial Services

This free online paycheck withholdings tool may help you avoid a tax bill for 2023, IRS says


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If you had a surprise tax bill this season or your refund was smaller than expected, it may be a good time to review your paycheck withholdings.

The IRS collects taxes throughout the year, typically through paycheck withholdings for W-2 employees or quarterly estimated tax payments for self-employed workers. You can expect a refund if you’ve overpaid or a tax bill for not paying enough.

One way to help avoid a 2023 tax bill is by using the IRS paycheck withholding estimator, according to Sheneya Wilson, a certified public accountant and founder of Fola Financial in New York.

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The free calculator shows how your current withholding affects your take-home pay, next year’s refund or tax bill.

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“The biggest thing is taking an inventory of what happened last year” and making the necessary adjustments, she added.

Common reasons to change withholdings

You typically complete Form W-4 when starting a new job, which tells your employer how much to withhold from each paycheck for federal taxes. But there are several reasons why the form may need to be updated and resent to an employer.

For example, there may be family changes like marriage, getting divorced or welcoming a child into the family, Wilson said. Other lifestyle changes, such as buying a home or major income shifts, may also affect next year’s taxes, according to the IRS.

Top reasons to adjust your withholding:

1. Tax law changes

2. Lifestyle changes like marriage, divorce or children

3. New jobs, side gigs or unemployment

4. Tax deductions and credits shifts

Of course, withholdings may also come down to personal preferences, such as the desire to receive a refund every year, said certified financial planner Kevin Brady, vice president at Wealthspire Advisors in New York.

However, if you discover you’re not on track, “there always is the option to make a quarterly estimated payment,” Brady explained.

As of April 7, the IRS issued over 69 million refunds, with an average payment of $2,878, more than 9% smaller than the average refund at the same point last tax season.



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