The fall season is officially here. Tax season will be here before you know it. This is the perfect time to review your tax withholding and/or payments to make sure you do not owe taxes when you file your return next April. Taxpayers who are especially vulnerable to owing taxes at the time of filing their return are those who:

1. Have had a life change from the last return filing and have not accounted for that change in withholding/tax payments in the current year. Some examples of this situation are:

• taxpayers who were married in the prior year and are now single will have a lower standard deduction and may have a higher tax this year;
• taxpayers who qualified as head of household last year and do not qualify for that status this year will also have a lower standard deduction;
• taxpayers who qualified for child tax credits last year, but whose children have aged out would no longer be able to offset their tax liability with the child tax credit and owe more tax.

2. Have changed jobs during the year and are making more money. These taxpayers may not have had enough withheld to account for the increase to the tax liability which will result from the higher income.

3. Gig economy workers. These workers may not have had any taxes withheld from their income and may not have made any estimated tax payments during the year.

4. Taxpayers who have a second job or a side business. These taxpayers may not have withheld enough taxes from the second job because they did not account for the fact that the pay from both jobs needed to have been taken into account in determining the withholding amount. Taxpayers who have a side business, in addition to a salary, may also not have made any estimated tax payments for the income earned in the business.

5. Taxpayers who receive monies which are not subject to withholding such as interest, dividends or gains from the sale of assets.

Taxpayers who do not pay enough in withholding tax or estimated tax payments will find themselves not only owing tax when the tax return is filed in April, but also a penalty for failure to make estimated tax payments throughout the year. In order to avoid the estimated tax penalty a taxpayer has to have paid through withholding or tax payments either: (a) 100% of the previous year’s tax liability, so long as the previous year’s tax was a 12-month tax year, or (b) 90% of the current year’s tax liability, whichever is lower.

The estimated tax penalty can be avoided if: (a) the amount of tax owed is less than $1,000, after the application of credits and payments/withholding, (b) due to a casualty, disaster, or other unusual circumstances the imposition of the penalty would be “against equity and good conscience”, (c) the taxpayer retired after having reached the age of 62 or became disabled in the tax year for which the estimated payments were required to be made or in the preceding year and the failure to make the payments was due to reasonable cause and not willful neglect.

The IRS has a tool to help taxpayers determine the proper amount of tax to be paid during the year. Now would be a good time to use the tool to see if you have been paying enough to tax throughout the year so that you can avoid an unpleasant surprise in April. You can access the tool here: https://www.irs.gov/individuals/tax-withholding-estimator