As we enter the 4th quarter of 2020, the IRS is advising taxpayers to check their tax withholdings. Adjustments can still be made for the year to either boost take home pay or avoid surprising tax bills. Items to consider as you review your withholdings include:
Coronavirus tax relief - For those who have sought relief during the pandemic.
Natural disasters - There may be special tax law provisions that could help taxpayers who are in areas that have been declared a major disaster area by the federal government.
Unemployment Compensation - Many more taxpayers have claimed unemployment this year for the first time. Many of these people are unaware that unemployment compensation is taxable and will have a surprise come tax season if they do not include this in their review.
Job loss - If you were out of work during any part of the year, a review of your withholdings could allow you to bring home more pay for the end of the year as you try to recover from any loss of work earlier in the year.
Moving to the gig economy - Some taxpayers have had to make some adjustment during this unusual time and have turned to taking odd jobs or consulting. If a taxpayer is not used to this type of income, they may forget that they do not have withholding being taken out of paychecks and have a surprise come tax season. Quarterly estimates for this type of work are advised by the IRS.
Life changes - Have you gotten married, divorced, or had a new baby enter the family? All of these events could have an affect on your taxes and your withholding should be reviewed to take these events into consideration.
Taxes are generally paid throughout the year, so don’t wait until the end of the year to see if you will owe. The IRS has launched a Tax Withholding Estimator tool to help you review your withholdings. Perform your review and make any changes to your withholdings or estimated payments today.