The IRS urges everyone who works as an employee and who also has income from other sources to perform a Paycheck Checkup now. For example, certain individuals often need to pay estimated or additional tax. This includes taxpayers who have certain types of income from the sharing economy, interest, dividends, self-employment, capital gains, or prizes and awards. A Paycheck Checkup can help these taxpayers avoid an unexpected year-end tax bill and possibly a penalty when they file their 2018 tax return next year.
Individuals can do a checkup using the Withholding Calculator on IRS.gov or read Publication 505, Tax Withholding and Estimated Tax. This is especially important in 2018 due to tax changes taking effect this year. These changes are part of the Tax Cuts and Jobs Act
Here are some things for employees with other sources of income to consider:
- Taxpayers usually must pay at least 90 percent of the tax they owe during the year through withholding, estimated tax payments or a combination of the two. An estimated tax penalty will normally apply to a taxpayer who pays too little tax.
- Taxpayers can use their results from the calculator to help fill out their Form W-4 and adjust their income tax withholding. Taxpayers should submit their new W-4 to their employer as soon as possible.
- Many employees who also receive income from other sources may be able to forgo making estimated tax payments. They can instead increase the amount of income tax withheld from the paychecks they earn as an employee by claiming fewer withholding allowances on their Form W-4.
- In some cases, changing withholding allowances alone doesn’t result in enough taxes withheld. If this happens, a taxpayer can also use the Form W-4 to ask their employer to withhold an additional flat-dollar amount each pay period.
- For taxpayers who do need to make estimated payments, Form 1040-ES, Estimated Tax for Individuals, can help taxpayers figure these payments. It includes a useful worksheet for figuring the right amount to pay. Taxpayers can go to IRS.gov/payments for information on all payment options.