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
Use the IRS Tax Withholding Estimator and check your W4 withholding form to make sure it is correct.
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.