Q&A of the Week August 28, 2024

Why is tax withholding important?

Through their employer, employees have a certain amount of their income withheld from their paychecks for federal income tax.

If you don't withhold enough throughout the year, you may have a large tax bill after you file your tax return. If you withhold too much tax, you may be living on paychecks that are lower than necessary.

IRS Form W-4 is the Employee's Withholding Certificate and is typically completed by new employees, so the employer withholds the correct amount. The amount withheld is based on the information provided on the W-4.

If you aren't sure how much to withhold, you can use the Tax Withholding Estimator to help determine the appropriate amount.

Independent contractors do not fill out a W-4 and are responsible to pay the IRS directly. Some independent contractors make estimated tax payments on a quarterly basis.