The importance of the correct amount of tax withholding By: National Association of Tax Professionals
November 22, 2022

Now is a great time to remind your clients to check their tax withholding while there’s time left in 2022 to take advantage of any necessary changes. An adjustment made now may help your client avoid a big surprise, such as a big refund or a balance due, at tax time in 2023.

Life brings constant changes to individual financial situations. Events like marriage, divorce, new tax laws, a new child or home purchase can all be reasons to adjust withholding. You can refer your clients to the IRS withholding estimator, or encourage them to set up a time to meet with you, to review their financial situation and make any necessary adjustments to their withholding.

Tax Withholding Estimator
The IRS’s tax withholding estimator, also available in Spanish, can help taxpayers determine if too much income tax is being withheld and show them the adjustments that can be made to put more cash into their own pocket. In other cases, it can help them see that they should increase their withholding or make an estimated tax payment to avoid a tax bill when they file next year.

The estimator offers workers, retirees, self-employed individuals and other taxpayers a user-friendly, step-by-step tool for effectively tailoring the amount of income tax they should have withheld from wages and pension payments based on their personal circumstances.

Pay As You Go
Taxes are generally paid throughout the year, whether from salary withholding, quarterly estimated payments or a combination of both. However, about 70% of taxpayers withhold too much every year. This typically results in a refund. The average refund in 2022 was just under $3,000.

A few other facts about refunds:

  1. Taxpayers do not have to get one. Proper withholding adjustments can help boost take-home pay rather than be over withheld and get it back as a tax refund.
  2. While most are issued in 21 days or less from the filing of an error-free and paperless tax return, many take longer for different reasons.
  3. Taxpayers are advised not to rely on their refund to pay for big purchases.
  4. Direct deposit is the easiest and most convenient way to get a refund. More than 90% of all refunds are issued this way.
  5. Paper return processing delays stemming from the pandemic are six months or more. The IRS’s COVID-19 operations page offers complete details.

Other Items That May Affect 2022 Taxes
Some unforeseen events can trigger withholding adjustments. They include:
1. Coronavirus tax relief provided help for taxpayers, businesses, tax-exempt organizations and others – including health plans – affected by the coronavirus (COVID-19).
2. Disasters such as wildfires and hurricanes may trigger tax law provisions that help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location a major disaster area.
3. Job losses can create new tax issues. IRS Publication 4128, Tax Impact of Job Loss, explains the tax implications of this unfortunate circumstance.
4. Employees subject to payroll withholding moving into the gig economy due to the pandemic. The IRS advises people earning income in the gig economy to consider estimated tax payments to avoid a balance due or penalties when they file.

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penAbout National Association of Tax Professionals

The National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.

The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.

Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.

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