by | May 10, 2022 | Tax Tips and News
A reworked version of Form W-4 has been released by the IRS and the Treasury Department for the 2020 tax year. A number of changes were made to earlier draft versions of the form in response to complaints from tax professionals.
Accounting Today reports Treasury doesn’t expect to make further changes beyond some small inflation-adjustment updates.
The redesigned Form W-4 uses a building-block approach, replacing complex worksheets with straightforward questions, making it simpler for employees to figure withholding accurately. The new form uses the same basic information as the old design, but employs a more personalized, step-by-step approach to better accommodate taxpayers.
Accounting Today reports the redesign will not force employees to resubmit a Form W-4 simply because of the update. Employers can continue to figure withholding based on information from the most recent W-4 submitted.
Complaints from Tax Pros
The complaints about the draft version of the form, Accounting Today reports, came from accountants and tax practitioners alike, who said the draft version required taxpayers to reveal too much information to their employers about outside sources of income for employees and their spouses.
The tax reform package passed in late 2017 eliminated traditional exemptions for taxpayers and dependents along with a long list of deductions, increasing the standard exemption amounts instead. The IRS urged taxpayers to do a “paycheck checkup” last year to make sure enough was being withheld from the taxpayers’ paychecks, but few taxpayers went through the complicated process. As a result, many taxpayers found themselves owing tax because of inadequate withholding.
The IRS is urging taxpayers to do another withholding checkup this year to make sure the correct amount is withheld from their paychecks. The agency has also come out with a new Tax Withholding Estimator online tool to help.
– Story provided by TaxingSubjects.com
by | May 10, 2022 | Tax Tips and News
With 2020’s extended tax deadlines due to the coronavirus pandemic, it seems like we just wrapped up the previous tax season. But believe it or not, the next filing season kicks off Jan. 1, 2021.
The Internal Revenue Service is encouraging taxpayers to begin organizing their tax-related documents now, to avoid confusion later on. The IRS has even put together a special web page that outlines the steps that taxpayers can take now to prepare for the 2021 filing season.
Make filing easier in ‘21.
The first step toward filing, of course is to gather the necessary paperwork or electronic files that every taxpayer needs to file. Forms W-2, Wage and Tax Statement; Forms 1099-MISC, Miscellaneous Income; and other income documents help determine if the taxpayer is eligible for deductions or credits.
They’ll also need their Notice 1444, Economic Impact Payment, to calculate any Recovery Rebate Credit they may be eligible for on their 2020 federal income tax return.
The best rule of thumb is that most income is taxable, including unemployment compensation, refund interest and income from the gig economy and virtual currencies.
Taxpayers with an Individual Taxpayer Identification Number (ITIN) should ensure it hasn’t expired before they file their 2020 tax return. If it has expired, the IRS recommends they submit a Form W-7, Application for IRS Individual Identification Number, now to renew their ITIN.
Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and could even be ineligible for certain tax credits.
Also on the income side, taxpayers can use the Tax Withholding Estimator on IRS.gov to help calculate the right amount of tax to have withheld from their paychecks. If they need to adjust withholding for the remainder of the year, time is running out. It’s best to submit a new Form W-4, Employee’s Withholding Certificate, to their employer as soon as possible.
Those who received non-wage income like self-employment income, investment income, taxable Social Security benefits, and in some instances, pension and annuity income, may have to make estimated tax payments.
Payment options can be found at IRS.gov/payments.
No EIP? Check into the Recovery Rebate Credit!
Taxpayers may be able to claim the Recovery Rebate Credit if they met the eligibility criteria in 2020 and:
- They didn’t receive an Economic Impact Payment this year, or
- Their Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018) plus $500 for each qualifying child.
- For additional information about the Economic Impact Payment, taxpayers can visit the Economic Impact Payment Information Center.
Interest on a refund is taxable.
Taxpayers who got a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds.
Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income, to anyone who received interest totaling at least $10.
Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receiving a 2020 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer.
Some Refunds Not Available Until March
By law, the IRS can’t issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before the middle of February. The law requires the IRS to hold the entire refund – even the portion not associated with either the EITC or ACTC.
The IRS expects most refunds related to these two credits to be available in taxpayer bank accounts or on debit cards by the first week of March if they chose direct deposit and there aren’t any other issues with their tax return.
Taxpayers should use the Where’s My Refund? online tool to track their refund payment.
Stay home and stay safe with IRS online tools.
Taxpayers can find online tools and resources to help get the information they need. These IRS.gov tools are easy-to-use and available 24 hours a day. Millions of people use them to find information about their accounts, get answers to tax questions or file and pay their taxes.
Taxpayers also have several options to find a tax preparer. One resource is Choosing a Tax Professional, which offers a wealth of information for selecting a tax professional.
The Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help taxpayers find preparers in their area who currently hold professional credentials recognized by the IRS, or who hold an Annual Filing Season Program Record of Completion.
Source: IR-2020-256
– Story provided by TaxingSubjects.com
by | May 10, 2022 | Tax Tips and News
We’ve all been there before: We got a new job, and on the first day, our new boss puts a Form W-4 on our desk and tells us to fill it out for withholding.
It takes a bit of math and what feels like a good helping of guesswork to figure out just how much tax we need to withhold from a paycheck. Too little, and we could owe a hefty sum when we file; too much, and the IRS hangs onto it until we get a tax refund. Luckily, the Internal Revenue Service has an online tool that can help taxpayers determine how much they need to withhold.
The Tax Withholding Estimator on IRS.gov does just what it says: help taxpayers determine whether their employer is withholding enough tax or if they need to fill out a new Form W-4. The tool is available for regular employees, but also for retirees, self-employed taxpayers and others—virtually anyone who gets a regular paycheck.
With just three easy steps, the clouds of uncertainty can begin to clear.
Step One: Gather Documents
This first step should be completed before taxpayers bring up the Estimator. Users will need a copy of their most-recent pay stub and tax return. Once those items are in hand, the user can go online and use the Tax Withholding Estimator on IRS.gov.
Users should read all the information and directions presented there. To move on, click the blue Tax Withholding Estimator button.
Step Two: Answer Questions
Once they’re done with the opening information, users get down to giving the tool with the information needed to come up with the correct withholding amount. This is done by merely answering the questions posed on-screen about the user’s tax situation.
As the user completes a section, clicking the blue Next button sends them to the next step.
Step Three: Review Results
The Estimator helps users aim for a tax-due amount that’s close to zero—or a refund.
Depending on the information given by the user, the tool may deliver a recommendation to submit a new Form W-4, Employee’s Withholding Allowance Certificate. The W-4 goes to the employer, not the IRS, and is used to change the amount withheld each pay period.
Many times, employers use an online method for making changes in withholding, so workers should check with their employers before filling out a paper form.
Taxpayers who get a pension can use their results to fill in a Form W-4P, which goes to the payer.
Source: What taxpayers need know about using the IRS Tax Withholding Estimator.
– Story provided by TaxingSubjects.com
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