Last week I wrote about how the complications inherent in the tax system made it impossible for the IRS to release a promised postcard-sized tax return. Since then, the agency has unveiled a draft of a new, more complicated W-4 form and a redesign of their online tax withholding tool.
The first bit of evidence as to how these are attempting to help one through a difficult system is how the online tax withholding estimator is a rebranding of the withholding calculator. A strict calculation was possible when more people worked one W2 job and their tax picture was more straightforward because of it. That situation has become rarer, though, so the numbers are now more honestly labeled estimates.
These estimates are better, though, for they take into account things left out in the past. One thing that was simple but not always taken into account through older forms and calculation was if a spouse earned money, too. Now, the IRS is trying to accommodate that situation.
One of the biggest pieces left off people’s calculations that is now being handled is money one makes as a contractor. The gig economy is not only inhabited by those who work full-time in those gigs, but by those working on the side for some extra money. Often, those people can be under the impression that the money begin taken out of their paychecks at those primary jobs is going to cover their tax obligation. If you have not personally taken into account that you are going to make that money, though, then chances are good it is not being covered. These new tools allow you to put that money into the calculations and keep surprises from happening come tax time.
Unfortunately, many people do not make these adjustments until it is too late. I can’t always fault people for this either. If you’re only working these side gigs to make a few hundred dollars a month, that amount of money helps pay the household bills, but it does not seem like a giant amount that’s wildly going to affect your taxes. When at the end of the year, though, those months add up to a few thousand dollars – well, now you’re looking at a tax hit that could be enough to cause an issue.
So let this stand as a warning/recommendation/compulsion to put these more advanced calculations/estimations to work for you. This way you can make sure that when you file your taxes you don’t’ have to worry about getting an extra bill with it. Or maybe you even want to make sure that you keep getting a refund with it (although let’s also talk about how you can get some money automatically put into an account that will get you some interest and give you access to it for emergencies instead of waiting for a government payout). No matter what, staying on top of things will help you know what’s going on, and that knowledge can be powerful. And as always, we are here to help you arrive at the answers you want to find.
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