Reviewing your tax withholdings before the end of the year can help you avoid unexpected tax bills or penalties when you file your return. Taking a few minutes to compare your current federal and state withholdings against your expected tax liability gives you time to make adjustments while there are still paychecks left in the year. The IRS Tax Withholding Estimator and your state’s withholding calculator are helpful tools for determining whether you’re on track.
It’s also important to understand the IRS safe harbor rule, which generally protects you from underpayment penalties if you’ve paid at least 90% of your current year’s tax liability or 100% of last year’s tax liability (110% if your adjusted gross income exceeds $150,000). If you’re behind, don’t worry, there’s still time to catch up by spreading any additional withholding or estimated tax payments over the remaining months of the year.
If you discover your withholdings need to be updated, consider taking these steps:
- Adjust your federal tax withholdings.
- Adjust your state tax withholdings.
- Update your estimated tax payments, if applicable.
If you have questions about how these changes may affect your budget, FRB Federal Credit Union is here to help. Our certified financial counselors can help you understand your options and keep your finances on track before tax season arrives.