The IRS said taxpayers should adjust their tax withholding as soon as possible or face a potential “surprise” when they file their tax returns next year.
The Internal Revenue Service (IRS) has issued an alert to taxpayers, encouraging them to adjust their 2024 withholding so as to either avoid effectively giving the government an interest-free loan of their money or face the prospect of penalties and interest if too little tax is withheld.
The IRS said on Nov. 3 that with the end of the year fast approaching, taxpayers should review their tax withholding as soon as possible in order to “avoid a potential surprise” when they file their tax returns in 2024.
“Although it’s best for taxpayers to verify withholding early in the year, an adjustment made in the final weeks of 2023 could still help to avoid an unexpected result, such as a big refund or a balance due, when filing taxes next year,” the IRS said.
Having too much tax withheld and waiting for a refund at tax time is akin to giving the government an interest-free loan. The IRS estimates that roughly 70 percent of taxpayers withhold too much every year, resulting in a refund at tax time.
However, if a taxpayer does not have enough taxes withheld from their paychecks throughout the year, they may owe a balance when they file their taxes. This means they will have to pay the remaining balance of taxes owed to the IRS when they file their tax return.
Owing a balance at tax time can be a significant financial burden, especially if the balance is large or if the taxpayer is struggling to make ends meet.
There are also penalties and interest that may apply when the taxpayer owes a balance when filing their taxes. The IRS charges interest on any unpaid taxes starting from the original due date of the return. Penalties may also be assessed if the taxpayer fails to file their return on time or if they owe taxes and fail to pay them by the deadline.
Owing a balance can also have negative effects on credit score as it is considered a debt that is unpaid. This can also lead to wage garnishments, liens on property, and even imprisonment if the taxpayer fails to pay their taxes.
By Tom Ozimek