IRS says a Paycheck Checkup helps avoid tax surprises

 
WASHINGTON — The Internal Revenue Service is reminding taxpayers that using the IRS Tax Withholding Estimator to do a Paycheck Checkup can help them have the right amount of tax withheld and avoid surprises when filing next year.
 
Because income taxes are pay-as-you-go, taxpayers are required by law to pay most of their tax as income is received. There are two ways to do this:
 

• Through withholding from paychecks, pension payments, Social Security benefits or certain other government payments.
• Making quarterly estimated tax payments throughout the year for income not subject to withholding.

 
Income tax withholding is generally based on the worker’s expected filing status and standard deduction. The Tax Withholding Estimator is a tool on IRS.gov designed to help taxpayers determine how to have the right amount of tax withheld from their paychecks. It offers workers, retirees, self-employed individuals and other taxpayers a clear, step-by-step method to help determine if there is a need to adjust their withholding and submit a new Form W-4 to their employer. The latest update of the Tax Withholding Estimator provides detailed explanations to withholding recommendations on the Results Page.
 
When to do a Paycheck Check-up
 
Taxpayers should check their withholding annually and when life changes occur, such as marriage, childbirth, adoption and buying a home. The IRS recommends anyone who changed their withholding this year or received a tax bill after they filed their 2019 return should do a Paycheck Checkup.
 
Estimated taxes
 
Taxpayers with a substantial portion of their income not subject to withholding − the self-employed, investors, retirees, those with interest, dividends, capital gains, alimony and rental income − often need to pay quarterly installments of estimated tax.
 
The IRS reminds taxpayers that various financial transactions, especially late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency, real estate or other property sold at a profit.
 
Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. They can also visit IRS.gov/payments to pay electronically. IRS offers two free electronic payment options where taxpayers can schedule their estimated federal tax payments up to 30 days in advance with IRS Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).
 
For information see:
 
Tax Withholding Estimator FAQs
FAQs on the 2020 Form W-4

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720