2023 Federal Publication 505, Tax Withholding and Estimated Tax
Federal income tax is a pay-as-you-go system– requiring you to pay taxes as you earn or receive income during the year. Primarily, there are two ways to pay income tax: Withholding and Estimated Tax.
A. Withholding: Employers deduct tax from your pay, also applies to certain incomes like bonuses and pensions.
B. Estimated Tax: For self-employed and those with various income sources like dividends and rents.
Visit this link to learn how to fill out and submit a W-4 form to your employer.
2023 Updates: What's Different This Year
1. Standard deduction increased for all filers.
1.1 Single/Married Filing Separately: $13,850.
1.2 Married Filing Jointly/Qualifying Surviving Spouse: $27,700.
1.3 Head of Household: $20,800.
2. Retirement savings contribution credit income limits increased.
3. Adoption credit/exclusion increased to $15,950; MAGI limit: $279,230.
To calculate your 2023 IRS tax, add the relevant deductions from above along with other necessary details in this tax calculator. It will give you a rough idea of whether you owe taxes or might get a refund for this year.
Note: Taxes for 2023 can no longer be withheld. To learn about the current tax year's withholding, visit here.
FAQs– Tax Withholding and Estimated Tax
1. What is Tax Withholding and Estimated Tax?
Tax withholding is when your employer takes a portion of your paycheck for taxes. On the other hand, Estimated tax is money you set aside to pay taxes on income not covered by withholding, like self-employment or investment earnings.
2. What is Publication 505 (2023)?
Publication 505 (2023) is a guide from the IRS that helps you understand and manage tax withholding and estimated tax payments. It provides clear information on how to meet your tax obligations.
3. How do I know if I need to pay Estimated Tax?
If you are self-employed or have additional income sources like dividends or rent, and your employer doesn't withhold enough tax, you might need to pay an estimated tax.
4. I am not an employee; do I still need to worry about tax withholding?
Yes, if you are not an employee, you might need to make estimated tax payments. This applies to self-employed individuals or those with additional income sources like dividends or rental income.
5. What happens if I don't pay enough tax during the year?
If you don't pay enough tax through withholding or estimated tax, you might face a penalty. So, it's important to keep up with your tax payments.