Taxes can be confusing. The process can indeed be stressful. Here are some tax thoughts based on my just-completed first year doing taxes at H&R Block.
Make sure you withhold enough
Some may think it’s very clever to not withhold enough because then they get more each paycheck. Yeah, no. If you earned $80,000 and only had $3,5000 withheld, you will owe quite a lot. Had one client like this. She owed $9,000 and was flattened.
Another gotcha here is if the taxpayer has child tax credits and the kids become too old or there is a divorce and they live with their ex. Then the taxpayer could lose $3,000 or more in refundable credits and have more taxes due. Plus, a divorce mean a lower standard deduction
Itemized deductions for most isn’t as good as standard deduction.
Standard deduction for 2020 with be $12,400 for single and $24,800 for married filing jointly. For most of us, itemizing would get anywhere close to these numbers.
Social Security can be taxable!
Depending on income, up to 85% of Social Security can be taxable. You can have taxes taken out of the monthly payment by sending Form W4-V to a Social Security office. This can help avoid unpleasant surprises at tax time. You can request 7%, 10%, 12%, or 22% be withheld.
Beware of W-2s for small amounts of pay
W-2s for small amounts have federal withholding at a lower percentage than larger W-2s. This can mean not enough withholding has been done. An example: One spouse earns $75,000 and has W-2 withholding at about 22%. The other spouse has a W-2 for $8,000 and tax is withheld at a much lower rate. Their income are combined when paying taxes. Thus the $8,000 W-2 will be taxed at a higher rate than what was withheld.
The Healthcare penalty is gone. Yay!
The horrible $695 (at least) penalty for not having healthcare insurance is gone, starting tax year 2019. Yay! It was intended to nudge people to get insurance but instead mostly penalized low-income people.