IRS Warns Taxpayers Who May Have to Pay ‘Surprise’ Fees

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IRS Issues Warning to Taxpayers About Potential ‘Surprise’ Fees

Taxpayers may face unforeseen financial burdens if they fail to utilize the IRS Tax Withholding Estimator, the federal agency cautioned today.

Quick Facts:

  • The IRS is cautioning taxpayers about potential ‘surprise fees’ if they don’t use the Tax Withholding Estimator.
  • The Tax Withholding Estimator helps individuals ensure the correct amount of income tax is withheld from their earnings.
  • Taxpayers are advised to review the estimator annually, especially after significant life events.

Taxpayers often encounter unexpected liabilities when their tax refund from the previous year was excessive or if the amount withheld from their income was inaccurate. The IRS Tax Withholding Estimator offers a solution to guarantee accurate withholding for the year 2024. The tool empowers employees, retirees, and self-employed individuals to adjust their income tax withholding, minimizing the risk of unwelcome financial outcomes next year.

Traditional withholding pertains to the federal income tax deducted from paychecks. Should individuals find discrepancies in the estimator results, they can complete a new W-4 form to ensure the accurate amount is withheld, thus preventing unpleasant tax bills or penalties upon filing.

According to the IRS, “The Tax Withholding Estimator will help taxpayers avoid unwanted results in 2024 if the refund for their 2023 return was too large, too small, or if they received a surprise tax amount due.”

Taxpayers can also make informed decisions about lowering their tax withholding initially and increasing their take-home pay, potentially reducing their tax refund while providing additional funds throughout the year.

The IRS advises yearly review of the withholding estimator, particularly after significant life events such as marriage, divorce, home purchase, or childbirth.

Financial literacy instructor Alex Beene emphasized the tool’s significance, especially for individuals with fluctuating incomes, stating, “The IRS has provided it as the most accurate tool to find out the best estimate of what you will owe based on the information you provide.”

Kevin Thompson, finance expert and founder/CEO of 9i Capital Group, highlighted the common occurrence for higher-income joint filers claiming zero for withholdings and urged individuals to avoid facing significant tax liabilities at year-end.

The IRS introduced the calculator tool in 2019 to enhance service quality, alongside efforts to increase phone call volume and expedite the clearance of a backlog of 1.9 million paper tax returns.

To use the IRS Tax Withholding Estimator, individuals require their and their spouse’s most recent pay statements, as well as details of other income sources and their most recent income tax return.

Not withholding the correct amount from one’s earnings may become a prevalent issue, given the IRS’s adjustments to several tax brackets and deductions, causing potential financial burdens, as noted by finance expert Michael Ryan.

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