Time to Check Tax Withholding and Estimated Tax Payments to Avoid a Surprise Tax Bill in 2021
October 19, 2020
The IRS has recently reminded taxpayers to contact their CPAs and review their tax withholdings and payments to avoid surprises or additional tax penalties for the 2020 tax year. The information and updates in this article are provided to help you take advantage of multiple tax relief programs, payment options and an improved tax withholding tool. By taking advantage of these features, you can reduce the amount of taxes owed for 2020 and if needed, develop an actionable payment plan.
- Coronavirus Tax Relief: Receive updates and resources for tax help for taxpayers, businesses, tax-exempt organizations and others – including health plans affected by coronavirus (COVID-19).
- Disasters Relief: Recent and special tax law provisions may help taxpayers recover financially from the impact of a major disaster in their location. Receive more information on how to prepare for and get help during a disaster and explore various ways to contribute to charities and more.
- Unemployment Compensation: For those who received unemployment compensation, it is advisable to have tax withheld now to avoid a larger lump-sum payment.
- Job Loss: IRS Publication 4128 - this PDF document explains how the loss of a job may create new tax issues and provides guidance on how to proceed.
- Gig Economy: The gig economy is activity where people earn income providing on-demand work, services, or goods. This type of income is taxable and needs to be reported to the IRS.
- Life Changes: Major life changes such as marriage or having children can affect your tax situation.
The most common method of paying taxes is to set up payments throughout the year from a withholding account, estimated quarterly payments, or a combination of both. On average, 70% of taxpayers receive a refund of $2,400 for tax withholdings.
Payment Options and Refunds
You can view your taxes owed, payment history, and key tax return information by visiting IRS.gov/account. There are multiple ways for taxpayers to pay including electronically, online, by phone, or with a mobile device and the IRS2Go app. Taxpayers can schedule estimated tax payments electronically and receive email notifications to record the payments. By filing electronically and choosing Direct Deposit, taxpayers will receive the refund issued by the IRS within 21 days, however this could be delayed.
Improved Tax Withholding Estimator Tool
For help with your withholding, the IRS launched an improved Tax Withholding Estimator tool to make it easier for everyone to have the right amount of tax withheld during the year. Taxpayers can use the new tool to estimate their yearly income tax. The Tax Withholding Estimator compares that estimate to your current tax withholding, and it can help you with accessing if you need to change your withholding with your employer.
More details about the Tax Withholding Estimator and the new 2020 withholding tables can be found on the Frequently Asked Question pages located on the IRS website.
If you have questions about estimated tax payments or how to take advantage of the tax relief programs, payment options or refunds, contact Cambaliza McGee LLP today at (949) 484-8288.
Author: CM Editorial