Blog

 

It's Never Too Early to Check Tax Withholding

September, 2020

While it probably seems like tax season just ended, it is never too early to do a "Paycheck Check-up" to make sure the right amount of tax is withheld from earnings - and avoid a tax surprise next year when filing your 2020 tax return. As a reminder, because income taxes operate as a pay-as-you-go system, taxpayers are required by law to pay most of their tax as income is received.

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. This tool allows workers, retirees, self-employed individuals, and other taxpayers to enter their information using a clear, step-by-step method that helps them determine if there is a need to adjust their withholding and submit a new Form W-4, Employee's Withholding Certificate, to their employer.

Who Should Check Income Tax Withholding

People who should check their withholding include anyone who:

  • is part of two-income families
  • works two or more jobs or who only work for part of the year
  • has children and claims credits such as the child tax credit
  • has older dependents, including children age 17 or older
  • itemized deductions on their 2019 tax return
  • is a high-income earner with a complex tax return
  • received large tax refunds or had a substantial tax bill for 2019
  • receives unemployment at any time during the year


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 Check-up.

Unemployment Compensation

By law, unemployment compensation is taxable and must be reported on a 2020 federal income tax return. Taxable benefits include any special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.

Millions of Americans currently receiving unemployment compensation (and for many individuals, an extra $600 in addition to regular unemployment benefits) may not realize that unemployment benefits are considered taxable income by the IRS and that tax should be withheld now to avoid owing taxes on this income when filing a federal income tax return next year.

Withholding is voluntary; however, federal law allows any recipient to choose to have a flat 10 percent withheld from their benefits to cover part or all of their tax liability. To do that, fill out Form W-4V, Voluntary Withholding Request (PDF), and give it to the agency paying the benefits. Do not send it to the IRS. If the payor has its own withholding request form, use that form instead.

There are several different types of payments that taxpayers should check their withholding on including:

  •  Unemployment compensation includes: Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
  •  Railroad unemployment compensation benefits
  •  Disability benefits paid as a substitute for unemployment compensation
  •  Trade readjustment allowances under the Trade Act of 1974
  •  Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974, and
  •  Unemployment assistance under the Airline Deregulation Act of 1978 Program

Recipients who return to work before the end of the year can use the IRS Tax Withholding Estimator to ensure they are having enough tax taken out of their pay.

In January 2021, unemployment benefit recipients should receive a Form 1099-G, Certain Government

Payments (PDF) from the agency paying the benefits. The form will show the amount of unemployment compensation they received during 2020 in Box 1, and any federal income tax withheld in Box 4. Taxpayers report this information, along with their W-2 income, on their 2020 federal tax return.

Paying 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.

Recipients of unemployment compensation that don't choose to withhold - or realize that the amount withheld is not enough - can also make quarterly estimated tax payments. The payment for the first two quarters of 2020 was due on July 15. Third and fourth quarter payments are due on September 15, 2020, and January 15, 2021, respectively.

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).

Financial transactions, especially those incurred 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.

- - - - - - - - - - - -

The information above has been provided courtesy of our partners at TaxRite. This information does not constitute advice. For tax advice, please speak with a tax professional and or a certified public accountant.

Legal Club offers plans that include a Free Tax Preparation and Advice benefit. This benefit provides annual savings of approximately $250 - $300 on preparation of State and Federal Tax Returns as well as valuable tax advice. To learn more about the plans offered by Legal Club, browse this website or call us at 800-305-6816.

Blog List

 

Return to Blog Overview

SEPTEMBER, 2020
It's Never Too Early to Check Tax Withholding

AUGUST, 2020
9 Questions That Explain Why Plans From Legal Club Provide Meaningful Benefits For Everyday Life

JULY, 2020
Overcoming the Pitfalls of Home Buying in the New Normal

JUNE, 2020
Advice For Attorneys During Uncertain Times

MAY, 2020
How to Reach Your Financial Goals

APRIL, 2020
Important Tax Updates Due To COVID-19

MARCH, 2020
Is Filing for Bankruptcy Right for You?

FEBRUARY, 2020
Paying Taxes Is Not Optional

JANUARY, 2020
Important Tax Information for 2020

DECEMBER, 2019
Resolutions for the New Year - 2020

NOVEMBER, 2019
Boosting Employee Morale and Productivity with Group Legal Plans

OCTOBER, 2019
The “Right” Attorney vs. Any Attorney

SEPTEMBER, 2019
Benefits That Are Popular With Employers Are A Win Win

AUGUST, 2019
Cyber Safety Tips from our Partners at GuardStreet Keeping Your Children Safe Online

JULY, 2019
Group Legal Can Help You Have a Successful Re-Enrollment

JUNE, 2019
3 Steps and The Basics of Estate Planning

MAY, 2019
Cyber Safety Tips from our Partners at GuardStreet - The Rise of the Dark Net

APRIL, 2019
Cyber Safety Tips from our Partners at GuardStreet - Should You Use ‘Free’ WiFi at Sporting Events?

MARCH, 2019
Tax Due Dates for 2019

FEBRUARY, 2019
Another Large Breach, Another Reason to Protect Yourself with Identity Theft Solutions

JANUARY, 2019
Important Tax Changes for 2019

DECEMBER, 2018
Cyber Safety Tips from our Partners at GuardStreet - Traveling Over the Holidays? You Might Want a VPN

NOVEMBER, 2018
5 Ways Legal Club Helps Employee Benefits Professionals Via Account Rounding

OCTOBER, 2018
Why Legal Club? Because Employees Don't Leave Their Problems in The Parking Lot

SEPTEMBER, 2018
Tips for Employee Benefits Professionals, Episode 1, Improving Productivity and Morale in the Workplace

Meaningful Benefits for Everyday Life

Legal, Tax, Identity Theft solutions and more

Corporate Headquarters

7771 W. Oakland Park Blvd., Suite 217

Sunrise, Florida 33351-6796

Toll Free Main 800-316-5387

Local Main 954-377-0222

Fax 954-267-0401

info@legalclub.com

Legal Club provides group legal, tax, ID theft solutions and other benefits to more than 2,000,000 working Americans and their families. Legal Club's suite of products can be tailored to meet the needs of evolving employee populations and are designed to provide maximum value and flexibility. Partnering with agents, brokers, consultants and other distributors, Legal Club has provided meaningful benefits for everyday life to organizations around the country for more than two decades.

Legal Club is a proud sponsor of BCRF, donating 2% of revenue from new group cases each year. Learn more >

© 2020  Legal Club of America. Privacy Policy | Disclaimer