What Employees Need To Know About Income Tax Withholding

Workers who are considered employees do not have to pay their own taxes during the year. Instead, employers withhold income tax from their employees’ paychecks and pay it to the IRS on behalf of the employee.

Now, if not enough tax is withheld from each employee’s paycheck, then the employee might end up receiving an unexpected tax bill come tax season. They might even come face-to-face with penalties when filing their tax returns in the next year.

On the other hand, if employees end up overpaying taxes as a result of having too much tax withheld from their paychecks throughout the year, the employee may receive a tax refund. That’s never a bad thing, but adjusting the tax that is withheld upfront may mean your employee will receive bigger paychecks throughout the year rather than a lump sum come tax season.

Ultimately, the amount of tax that is withheld from employee paychecks is determined by what employees do when they enter the workforce or change jobs. It all starts with the way employees fill out their W-4 form, the Employee's Withholding Certificate.

This information tells employers how much money they should withhold from an employee’s paychecks for federal income tax. The information that employees submit is out of the employer’s hands, but if your employee notices that something is off with the tax being withheld in their name, you can refer your employee to the information they submitted.

Get the forms right
If need be, employees can submit new W-4 forms when their personal or financial situation changes. That way, their current situation can be reflected in their withholding amounts.

Also, if your employees are not sure whether the right amount of tax is being withheld from their paychecks, the IRS offers a Tax Withholding Estimator tool on the official IRS.gov website. This tool can help people estimate their federal income tax withholding amounts while seeing how it may affect their refund, take-home pay or tax owed.

Keep in mind that all of this information applies only to workers whom you employ. If you pay contractors or freelancers to do work for you, remember that they are responsible for paying their own taxes directly to the IRS. You do not have to automatically withhold any of those taxes from their income because it is their responsibility, not yours. 
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That said, all taxpayers are encouraged to keep copies of their tax-related documents. Store them in a safe place to ensure that they can be easily found or remain readily available when it comes time for you to file an accurate return.