This ‘back of the napkin math' shows whether you could have a surprise tax bill, expert says

• No one likes a surprise tax bill, and there is still time to take action if you have not paid enough taxes for 2024, experts say. 
• Employees can use "back of the napkin math" to double-check 2024 withholdings, assuming your situation is similar to last year, said certified financial planner Tommy Lucas at Moisand Fitzgerald Tamayo.
• If your tax situation has changed from 2023, you can use a free withholding tool from the IRS.

No one likes a surprise tax bill, and there is still time to take action if you have not paid enough taxes for 2024, experts say.  

Generally, employees pay taxes via withholdings from each paycheck. Other income requires quarterly estimated payments. Overpaying typically results in a refund whereas not paying enough triggers a balance due.  

As an employee, you can use "back of the napkin math" to double-check 2024 withholdings, assuming your situation is similar to 2023, said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

Here's how to do it.

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One way to estimate tax withholding

You can start by finding your total federal taxes paid for 2023, which is listed on line 24 of your tax return. If your gross income and tax situation has not changed from last year, you are likely to owe a similar amount for 2024, Lucas explained.   

Next, you will need to review your pay stubs.

If you have paid roughly 75% of last year's total taxes by the end of September, "you're going to be pretty darn close, assuming everything is the same as the prior year," he said.  

However, "there's a whole slew of things that can change" from year to year, such as a second job, higher income, divorce, marriage or birth of a child, which makes your tax situation different, Lucas said. 

In those scenarios, you will need a more in-depth analysis to double-check your 2024 withholding, he said.    

IRS tax withholding estimator

If your tax situation changed this year, experts recommend periodically using a free tool from the IRS, known as the "tax withholding estimator."

The tool factors in your marital status, dependents, number of jobs, other sources of income, most-recent paystub, taxes withheld, estimated tax payments and other details.  

After plugging in your information, the IRS provides a prefilled Form W-4, which you can then provide to your employer to increase or decrease your withholding.

Alternatively, you could make payments directly to the IRS to cover your 2024 tax shortfall, Lucas said.

Either way, "you've got to keep an eye on it," or you could face an unexpected tax bill, along with penalties and interest, said Mark Steber, chief tax information officer at Jackson Hewitt.

What to know after updating your withholding

If you update your tax withholding via Form W-4, you will want to make sure the change is accurate and reflected in future paychecks through the end of the year, Lucas said.

But your withholding should be temporary through 2024 and you will need to resubmit Form W-4 again in January, he warned. Otherwise, you could withhold too much for 2025.