IRS Introduces Tool to Help Filers Avoid a Tax Surprise

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Worried about owing the IRS money? Read on to see how a new tool might help. 

For the week ending May 5, the average tax refund issued by the IRS was $2,803. That’s a 7.3% decline from the average tax refund of $3,025 a year prior.

It’s not all that surprising that tax refunds are down this year. Many of the pandemic-era benefits that boosted tax refunds last year expired at the end of 2021, so they were no longer applicable for 2022 tax returns.

Not only did many tax-filers see a smaller refund hit their checking accounts this year, but some filers wound up owing the IRS money unexpectedly. And that’s not ideal.

Many people aren’t exactly flush with savings these days given the blow inflation has dealt them. So owing money unexpectedly to the IRS could constitute a major financial burden.

Thankfully, the IRS is taking steps to help filers avoid unpleasant tax surprises in the future. And it pays to take advantage of a new tool designed to do just that.

Are you having enough tax withheld from your earnings?

A big reason some people end up owing the IRS money when they file a tax return is that they’re not withholding enough tax month after month. When you work for an employer, you fill out a W-4 form that asks you questions like whether you want to claim dependents or not for withholding purposes. Depending on the information you put down, your employer will withhold more or less tax from each paycheck you get.

But one thing your employer generally won’t tell you is whether you’re having the right amount of tax withheld. So now, the IRS can help out in that regard.

When you use its new tool, you’ll be asked things like what your tax-filing status is, how many income sources you have, and what your income looks like. From there, you’ll need to indicate how much tax you’re paying per pay period. The IRS will use this information to see if you’re likely to have a balance due when you file your next tax return or not.

If you’re not having enough tax withheld, you can make adjustments to your W-4 to increase your withholding. As an example, you might choose not to claim dependents on that form, even if you do indeed have children.

A positive development

The IRS’s new tool won’t necessarily work for everyone. The agency even cautions that people with a very complicated tax situation may not benefit as much from the tool. And if you’re self-employed with a variable income, there’s probably not much to be gained by using it, either. (Though ideally, in that situation, you have an accountant you’re working with who can help you avoid a major underpayment.)

But if you owed the IRS money this year for the first time, and that came as a shock to you, then you may be eager to avoid a repeat when you file your taxes in 2024. And so it pays to use the new IRS tool and see what information it ends up giving you.

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