paycheck checkup | Nesteggg Accounting

Get ready to take the guesswork out of paycheck withholding

The tax filing season is quickly approaching. With that in mind, taxpayers should remember there’s still time to make an estimated or additional tax payment to ensure their tax withholding is still accurate.

Those who need to make an estimated tax payment for 2019 should remember that the fourth quarter payment is due Wednesday, January 15, 2020.

These taxpayers will want to check to see if their 2019 federal income tax withholding will unexpectedly fall short of their tax liability for the year. They can check this by using the Tax Withholding Estimator on IRS.gov.

All taxpayers can use the results from the Tax Withholding Estimator to determine if they should:

Complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit it to their employer.
Complete a new Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submit it to their payer.
Make an additional or estimated tax payment to the IRS before the end of the year.

This tool helps employees avoid having too much or too little tax withheld from their wages. It also helps those working for themselves make accurate estimated tax payments. Having too little withheld can result in an unexpected tax bill or even a penalty at tax time in 2020. Having too much withheld results in less money in their pocket.

The Tax Withholding Estimator asks taxpayers to estimate:

Their 2019 income.
The number of children to be claimed for the Child Tax Credit and Earned Income Tax Credit.
Other items that will affect their 2019 taxes.

The IRS Withholding Estimator does not ask for personally-identifiable information, such as a name, Social Security number, address and bank account numbers. The IRS doesn’t save or record the information entered in the Estimator.

Before using the Tax Withholding Estimator, taxpayers should gather their most recent pay stubs and income documents from all sources. They should gather documents related to pensions, annuities, Social Security benefits and self-employment income. They should also have a copy of their 2018 federal tax return. This will help estimate 2019 income and answer other questions asked during the process.

If a taxpayer follows the recommendations at the end of the Tax Withholding Estimator and changes their withholding for 2019, they should recheck their withholding at the start of 2020. A withholding change made in 2019 may have a different full-year impact in 2020. So, if a taxpayer does not file a new Form W-4 for 2020, their withholding might be higher or lower than they intend.

Taxpayers should remember that the Tax Withholding Estimator’s results will only be as accurate as the information provided. People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax . This includes taxpayers who owe alternative minimum tax or certain other taxes, and people with long-term capital gains or qualified dividends.

Taxpayers can take steps now to Get Ready to file their taxes in 2020

There are steps people can take now to make sure their tax filing experience goes smoothly next year. First, they can visit the Get Ready page on IRS.gov to find out more.

Here are a few other things people can do now:

Check their withholding and make any adjustments soon
Since most employees typically only have a few pay dates left this year, checking their withholding soon is especially important. It’s even more important for those who:

Received a smaller refund than expected after filing their 2018 taxes this year.
Owed an unexpected tax bill last year.
Experienced personal or financial changes that might change their tax liability.

Some people may owe an unexpected tax bill when they file their 2019 tax return next year. To avoid this kind of surprise, taxpayers should use the Tax Withholding Estimator to perform a quick paycheck or pension income checkup. Doing so helps them decide if they need to adjust their withholding or make estimated or additional tax payments now.

Gather documents
Everyone should come up with a recordkeeping system. Whether it’s electronic or paper, they should use a system to keep all important information in one place. Having all needed documents on hand before they prepare their return helps them file a complete and accurate tax return. This includes:

Their 2018 tax return.
Forms W-2 from employers.
Forms 1099 from banks and other payers.
Forms 1095-A from the marketplace for those claiming the premium tax credit.

Confirm mailing and email addresses
To make sure these forms make it to the taxpayer on time, people should confirm now that each employer, bank and other payer has the taxpayer’s current mailing address or email address. Typically, forms start arriving by mail or are available online in January.

People should keep copies of tax returns and all supporting documents for at least three years. Also, taxpayers using a software product for the first time may need the adjusted gross income amount from their 2018 return to validate their electronically filed 2019 return.

File electronically and choose direct deposit for a faster refund
Errors delay refunds. The easiest way to avoid them is to file electronically. Using tax preparation software is the best and simplest way to file a complete and accurate tax return. Tax prep software guides taxpayers through the process and does all the math. In fact, taxpayers can start looking into their filing options now.

Another way to speed thing up is to use direct deposit. Combining direct deposit with electronic filing is the fastest way to get a refund. With direct deposit, a refund goes directly into a taxpayer’s bank account. They don’t need to worry about a lost, stolen or undeliverable refund check.

IRS reminds employers about the benefits of EFTPS

The Internal Revenue Service today wants small business owners who are employers to know that the Electronic Federal Tax Payment System has features that can help them in meeting their tax obligations. EFTPS can help employers whether they prepare and submit payroll taxes themselves or if they hire a payroll service provider to do it on their behalf.

Many employers outsource to third-party payroll service providers some or all their payroll and related tax duties, such as tax withholding, reporting and making tax deposits. Third-party payroll service providers can help assure filing deadlines and deposit requirements are met and streamline business operations. Most payroll service providers administer payroll and employment taxes on behalf of an employer, where the employer provides the funds initially to the third party. They also report, collect and deposit employment taxes with state and federal authorities.

Treasury regulations require that employment tax deposits be made electronically and employers should ensure their third-party payer uses the Electronic Federal Tax Payment System (EFTPS).

EFTPS helps employers keep an eye on their tax responsibilities, even if they have hired a payroll service provider. EFTPS is secure, accurate, easy to use and provides an immediate confirmation for each transaction. Anyone can use EFTPS. The service is offered free of charge from the U.S. Department of Treasury and enables employers to make and verify federal tax payments electronically 24 hours a day, seven days a week through the internet or by phone.

Additionally, employers who use payroll service providers can verify that payments are made by using EFTPS online. The EFTPS webpage has information for employers who use payroll service providers. For more information, employers can enroll online at EFTPS.gov, or call EFTPS Customer Service at 800-555-4477 for an enrollment form.

The IRS recommends that employers do not change their address of record to that of the payroll service provider as it may limit the employer’s ability to be informed of tax matters.

Inquiry PIN
Third parties making tax payments on behalf of an employer will generally enroll their clients in the EFTPS under their account. This allows them to make deposits using the employer’s Employer Identification Number (EIN).

When third parties do this, it may generate an EFTPS Inquiry PIN for the employer. Once activated, this PIN allows employers to monitor and ensure the third party is making all required tax payments. Employers who have not been issued Inquiry PINs and who do not have their own EFTPS enrollment should register on the EFTPS system to get their own PIN and use this PIN to periodically verify payments. A red flag should go up the first time a service provider misses or makes a late payment.

Employers enrolled in EFTPS can make up any missed tax payments and keep making tax payments if they change payroll service providers in the future. They can also update their information to receive email notifications about their account’s activities. Access to this feature requires a PIN and password for the system.

Once they opt-in for email notifications, they’ll receive notifications about payments they submit including those made by their payroll service provider. Email notification messages show:

Payments scheduled
Payment cancellation
Return of payments
Reminders of scheduled payments

Employers who believe that a bill or notice received is a result of a problem with their payroll service provider should contact the IRS as soon as possible by calling or writing to the IRS office that sent the bill, calling 800-829-4933 or making an appointment to visit a local IRS office.

If an employer suspects their payroll service provider of improper or fraudulent activities involving the deposit of their federal taxes or the filing of their returns, they can file a complaint with the Return Preparer Office using Form 14157, Complaint: Tax Return Preparer. A check-box on Form 14157 allows the employer to select “Payroll Service Provider” as the subject of the complaint. Once received, Form 14157 complaints will receive expedited handling and investigation.

Making Ends Meet

You may wonder why it seems so much more difficult to make ends meet these days than it was in previous decades. Well, in short, because it is. Although earnings have risen they haven’t kept up with the cost of everyday necessities.

If you have been anywhere near a television, radio, computer, or newspaper in the last couple of months you know that there is a housing crisis in California, and every other metropolitan area of the United States, in fact. According to a CNBC report home prices have rises 73% (adjusted for inflation) from 1960 to 2000. Even rent has gone up, 43% (adjusted for inflation) from 1960 to 2000.

Let’s look at some household items you might need now as then.

Price of a gallon of milk – 1960 $.49; 2019 $3.50

Loaf of bread – 1960 $.22; 2019 $5.00 – in 1960’s dollars, adjusted for inflation, that price of bread would be $1.89

$20 worth of groceries – 1960 $20.00; 2019 $171.74

Gallon of gas – 1960 $.31; 2019 $2.65

A new car – 1960 $2,752.00; 2019 $36,843.00 – in 1960’s dollars, adjusted for inflation, that price of that car would be $23,642.00

Single Family House – 1960 $11,900.00; 2019 $250,000.00 – in 1960’s dollars, adjusted for inflation, that price of a single family home would be $102,231.00

Median Household wage – 1961 $5,700.00; 2019 $63,688.00

More Ends to Make Meet

While it may seem as if we are better off now wage-wise the above comparisons may not illuminate our wage stagnation in this country of the last 15 years. Not only are normal household expenses more expensive, there are just more of them! Television was three networks and a couple of local channels if you had the reception to get them, and in black and white for most of the 60s, but it was free.

Four out of five households on average had a telephone line in their house. Emphasis on “a”. There was no such thing as having multiple phones, or one for each family member including children. Compare that to your cell phone service now – one (expensive) phone for each family member, which you are probably financing, and several hundred dollars a month for the service.

Internet… ah, what was that? Of course, there wasn’t any back then. But can you imagine not having access to WiFi now?

More Americans were covered by health insurance through their job back then than now, so less out of pocket for premiums and deductibles.

Most of us didn’t have credit card debt. Sure, in the 1950s some people had a Diner’s Club card, which was impressive back then. But folks did not carry debt month over month. It wasn’t until the 1970s (see our article on Credit Bureaus for a brief history of credit) that carrying over debt became common.

Retirement was probably funded, at least in part, by your job. Now you are lucky to have an employer matched 401(k) contribution. We Americans are now working longer into our retirement than ever before.

Feeling the Pinch

So, if you have been feeling the pinch and feeling bad and thinking it was you, don’t. We as a society are all in the same boat, higher cost of living, shrinking wages, and increasing number of necessities, and some ‘wants’ that look like necessities. There may be not much to be done about these circumstances but you can do something that may be considered “old fashioned” but very ‘60s – budget. Living within your means may not be as fun as getting those cool shoes by charging them, but it can provide you with peace of mind over the long haul.

Taxpayers can use 2018 tax return to estimate 2019 withholding amount

Millions of people have filed their 2018 tax return, making this a prime time to consider whether their tax situation came out as expected. If not, taxpayers can use their finished 2018 return and the Tax Withholding Estimator to do a Paycheck Checkup ASAP and, if needed, adjust their withholding. Having their 2018 return handy can make it easier for taxpayers to estimate deductions, credits and other amounts for 2019. Performing a Paycheck Checkup is a good idea for anyone who:

Adjusted their withholding in 2018, especially those who did so later in the year.
Owed additional tax when they filed their tax return this year.
Had a refund that was larger or smaller than expected.
Had life changes such as marriage, childbirth, adoption, buying a home or income changes.

Since most people are affected by the Tax Cuts and Jobs Act all taxpayers should check their withholding. They should do a checkup even if they did one in 2018. This especially includes taxpayers who:

Have children and claim credits such as the Child Tax Credit.
Have older dependents, including children age 17 or older.
Experienced changes to itemized deductions this year.
Itemized deductions in the past.
Are a two-income family.
Have two or more jobs at the same time.
Only work part of the year.
Have high income or a complex tax return.

This Tax Withholding Estimator works for most taxpayers. Those with more complex situations may need to use Publication 505, Tax Withholding and Estimated Tax, instead of the Tax Withholding Estimator. This includes taxpayers who owe alternative minimum tax or certain other taxes, and people with long-term capital gains or qualified dividends.

Taxpayers can use the results from the Tax Withholding Estimator to see if they need to complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit it to their employer. In some instances, the calculator may recommend they have an additional flat-dollar amount withheld each pay period. Taxpayers give this form to their employer and do not send this form to the IRS.

More information:
Tax withholding: How to get it right
Publication 5307, Tax Reform Basics for Individuals and Families
Form 1040-ES, Estimated Taxes for Individuals

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Tax planning should include a Paycheck Checkup

Year-round tax planning is important for everyone. Just because a taxpayer already filed their tax return doesn’t mean they don’t need to think about taxes for the rest of the year. In fact, what they do now may affect any tax they might owe next year. It could also affect the refund they expect.

Since federal taxes operate on a pay-as-you-go basis, taxpayers need to pay most of their tax during the year as they earn the income. Taxpayers should make sure they’re having the correct amount of tax withheld from their paychecks. It’s a good idea for taxpayers to do a Paycheck Checkup for these reasons:

Having too little withheld could lead to a smaller than expected refund.
Having too little withheld could even lead to an unexpected tax bill.
Employees who have too much tax withheld will see less money in each paycheck. Having more money in each paycheck may be more helpful than getting a large refund when they file.

Taxpayers can use the IRS Tax Withholding Estimator to check their withholding. All taxpayers should use this tool to do a Paycheck Checkup ASAP if they haven’t already done so in 2019. Some taxpayers should do another Paycheck Checkup even if they already did one this year. This includes anyone whose personal or financial information changes due to a life event. Some life events that can affect withholding are:

Marriage
Having a baby
Getting a new job
Getting a raise at work

Taxpayers who want to change how much tax is withheld from their paycheck simply need to submit an updated Form W-4 to their employer.

The IRS has several digital tools taxpayers can use to stay updated on important tax information that may help with tax planning. In addition to visiting the IRS.gov website, they can download the IRS2Go app, watch IRS YouTube videos, and follow the IRS on Twitter and Instagram.

Here’s what taxpayers should know about the new IRS Tax Withholding Estimator

Taxpayers who haven’t yet checked their withholding this year should do so ASAP. All taxpayers can do this by using the new mobile-friendly Tax Withholding Estimator. This new tool can be used by workers, as well as retirees, self-employed individuals and other taxpayers. It’s a user-friendly step-by-step tool to help taxpayers effectively adjust the amount of income tax they have withheld from wages and pension payments. This helps them make sure that they are paying the right amount of tax as they earn it throughout the year.

Here are some things people should know about the new tool:

Using the tool to do a Paycheck Checkup can help taxpayers avoid an unexpected year-end tax bill and possibly a penalty when they file their 2019 tax return next year.
The new tool allows taxpayers to separately enter pensions and other sources of income. Taxpayers who receive pension income can use the results from the estimator to complete a Form W-4P. They then give this form to their payer.
It’s important for anyone who had an unexpected tax bill or a penalty when they filed this year to do a checkup.
It’s also an important step for those who made withholding adjustments in 2018 or had a major life change.
The new Tax Withholding Estimator makes it easier to enter wages and withholding for each job held by the taxpayer and their spouse.
At the end of the process, the tool makes specific withholding recommendations for each job and spouse. It also clearly explains what the taxpayer should do next.
Those most likely to owe tax because they’ve had too little tax withheld include:
- Those who itemized in the past but now take the increased standard deduction.
- Two-wage-earner households.
- Employees with nonwage sources of income.
- Those with complex tax situations.

IRS automatically waives estimated tax penalty for eligible 2018 tax filers

WASHINGTON — The Internal Revenue Service is automatically waiving the estimated tax penalty for the more than 400,000 eligible taxpayers who already filed their 2018 federal income tax returns but did not claim the waiver.

The IRS will apply this waiver to tax accounts of all eligible taxpayers, so there is no need to contact the IRS to apply for or request the waiver.

Earlier this year, the IRS lowered the usual 90% penalty threshold to 80% to help taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The agency also removed the requirement that estimated tax payments be made in four equal installments, as long as they were all made by Jan. 15, 2019. The 90% threshold was initially lowered to 85% on Jan 16 and further lowered to 80% on March 22.

The automatic waiver applies to any individual taxpayer who paid at least 80% of their total tax liability through federal income tax withholding or quarterly estimated tax payments but did not claim the special waiver available to them when they filed their 2018 return earlier this year.

“The IRS is taking this step to help affected taxpayers,” said IRS Commissioner Chuck Rettig. “This waiver is designed to provide relief to any person who filed too early to take advantage of the waiver or was unaware of it when they filed.”

Refunds planned for eligible taxpayers who paid penalty
Over the next few months, the IRS will mail copies of notices CP 21 granting this relief to affected taxpayers. Any eligible taxpayer who already paid the penalty will also receive a refund check about three weeks after their CP21 notice regardless if they requested penalty relief. The agency emphasized that eligible taxpayers who have already filed a 2018 return do not need to request penalty relief, contact the IRS or take any other action to receive this relief.

For those yet to file, the IRS urges every eligible taxpayer to claim the waiver on their return. This includes those with tax-filing extensions due to run out on Oct. 15, 2019. The quickest and easiest way is to file electronically and take advantage of the waiver computation built into their tax software package. Those who choose to file on paper can fill out Form 2210 and attach it to their 2018 return. See the instructions to Form 2210 for details.

Because the U.S. tax system is pay-as-you-go, taxpayers are required by law to pay most of their tax obligation during the year, rather than at the end of the year. This can be done by having tax withheld from paychecks, pension payments or Social Security benefits, making estimated tax payments or a combination of these methods.

Like last year, the IRS urges everyone to do a “Paycheck Checkup” and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year. It’s also an important step for those who made withholding adjustments in 2018 or had a major life change. Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two wage earner households, employees with nonwage sources of income and those with complex tax situations.

Taxpayers can follow these three steps to use new Tax Withholding Estimator

All taxpayers should use the new Tax Withholding Estimator to do a Paycheck Checkup. This tool helps people make sure their employers are taking out the right amount of tax from the employee’s paychecks. The money withheld from an employee’s paychecks throughout the year should cover the amount of tax they owe.

Taxpayers who haven’t yet checked their withholding can follow these simple steps for using the estimator. Results will include a recommendation of whether the taxpayer should consider submitting a new Form W-4, Employee’s Withholding Allowance Certificate, to any of their employers.

Step 1: Gather documents.
Before beginning, taxpayers should have a copy of their most recent pay stub and tax return. Taxpayers should go to the main Tax Withholding Estimator page on IRS.gov. Once there, they should carefully read all information and click the blue Tax Withholding Estimator button.

Step 2: Answer the questions.
Users will answer a series of questions about their specific tax situation. When they complete each section, they click the blue “Next” button that takes them to the next section.

Step 3: Review the results.
Taxpayers use the estimator’s results to determine if they need to complete a new Form W-4, which they submit to their employer, not to the IRS. The tool helps the user target a tax due amount close to zero or a refund amount.

Improved tool on IRS.gov helps taxpayers check their withholding

All employees should make sure their employers are withholding the correct amount of tax from their paychecks. The best way for employees to do this is to use the new IRS Tax Withholding Estimator on IRS.gov.

The IRS just launched this improved tool to help taxpayers check their withholding by doing a Paycheck Checkup. This lets the employee check to see if their employer is taking enough tax from their paycheck to cover the amount of tax they owe. After using the Estimator, if necessary the employee can change the amount of tax their employer takes out of their paycheck. This will help employees avoid an unexpected result at tax time, such as a smaller refund.

After using the new mobile-friendly tool, some taxpayers may find they need to pay more taxes before filing their tax returns in 2020. These folks have a few options for doing so. Here are three ways taxpayers can adjust their withholding:

Change the withholding allowances on Form W-4.
When an employee reduces the number of allowances on their Form W-4, they increase the amount of income tax their employer withholds from their pay. On one hand, this mean a smaller paycheck. On the other hand, the employee is paying more tax upfront. This usually will mean less chance that they employee will see a smaller refund or larger tax bill at tax time.

Have an extra flat-dollar amount withheld from each paycheck.
Employees whose employers are already withholding the least amount of allowances can simply add a specific amount to their withholding. These employees can indicate this amount on a new Form W-4 and submit this to their employer or their employer’s payroll department. For example, an employee can tell their employer to withhold an extra $200 per paycheck. This will allow withholding to occur more evenly throughout the year.

Make estimated tax payments throughout the year.
Estimated payments are another way for taxpayers to pay what they owe in separate payments made throughout the year. For tax year 2019, the remaining estimated tax payments are due from individual taxpayers on September 16, 2019, and January 15, 2020. The fastest and easiest way to make estimated tax payments is electronically using Direct Pay or Electronic Federal Tax Payment System. Taxpayers can visit IRS.gov for other payment options.

More information:
Pay as You Go, So You Won’t Owe
Estimated Taxes
Form W-4S, Request for Federal Income Tax Withholding from Sick Pay
Form W-4V, Voluntary Withholding Request