Are you paying too much or too little tax?
Posted by William Byrnes on August 7, 2014
In Summer Tax Tip 10-2014, the IRS disclosed that that many taxpayers will discover that they either get a larger refund or owe more tax than they expected next April 15, 2015. But, the IRS stated, this type of tax surprise is controllable by the taxpayer.
One way to prevent owing more tax next April 15, plus interest and any penalty, or to avoid having too much tax withheld, is to adjust the amount of tax withheld from salary.
Another way to prevent interest and penalties on April 15th is to change the amount of estimated tax paid during the year.
Factors the IRS wants taxpayers to consider during the summer include:
• New Job. A taxpayer must fill out and submit Form W-4, Employee’s Withholding Allowance Certificate in order to begin new employment. The employer will use the information provided by the taxpayer on this form to calculate the amount of federal income tax to withhold from the paycheck.
• Estimated Tax. A taxpayer may need to pay estimated tax directly to the IRS during 2014 BEFORE filing the April 15 tax return in 2015. If a taxpayer earns income without withholding, such as self-employment, interest, dividends or rent, then it is likely that the taxpayer owes estimated tax. For the year 2014, tax may be due also on June 16, 2014, on Sept. 15 in 2014, on Jan. 15, 2015, and of course, also on Wednesday, April 15, 2015. Read more about estimated tax here.
• Life Event Change. Married? New Child? New House? The Form W-4 or Estimated Tax calculation needs to be updated to reflect a marriage, a child, or the purchase of a new home.
• Changes in Circumstances. A taxpayer that receives advance payment of the Obama Care premium tax credit in 2014 must report changes in circumstances, such as changes in income or family size, to the Health Insurance Marketplace where the medical insurance was bought for the year. Also, a taxpayer must notify the Marketplace if moving away from the geographic area covered by the Marketplace plan. Read more here.