Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year. Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.
WAGES & INCOME TAX WITHHOLDING
New Job: Your employer will ask you to complete a Form W-4, Employee’s Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from you paychecks.
Life Event: A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. We can typically submit a new Form W-4 anytime.
IRS Withholding Calculator: This online tool will help you figure the correct amount of tax to withhold based on your situation. Go to ALBAccounting.com under Resources for the handy online tool.
SELF-EMPLOYMENT AND OTHER INCOME
Estimated tax: This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of income tax withheld from your wages, pension or other income is not enough. If you expect to owe a thousand dollars or more in taxes and meet other conditions, you may need to make estimated tax payments.
Change in Estimated Tax: After you make the estimated tax payment, some life events or financial changes may affect your future payments. Changes in you income, adjustments, deductions, credits or exemptions may make it necessary for you to re-figure your estimated tax.
Additional Medicare Tax: A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status – Over $250,000 (joint return), $125,000 (married taxpayer filing a separate return), or $200,000 (all other cases).
Net Investment Income tax: A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to Individuals, estates and trusts that have certain investment income above certain threshold amounts.
ALB Accounting Services, LLC 670 Wharton Blvd Eagleview Town Center | Exton PA 610.458.0670 phone | 610.458.0673 fax ALBAccounting.com