COVID Tax Tips
The IRS is reminding taxpayers affected by COVID-19 to review their withholding status, particularly households receiving unemployment during this period.
Many taxpayers have experienced significant changes in their household income and could find the IRS Tax Withholding Estimator useful in reviewing their current tax withholding. The IRS Tax Withholding Estimator can help taxpayers determine how to have the right amount of tax withheld. It offers workers, retirees, and self-employed individuals a user-friendly, step-by-step method to help determine if they need to adjust their withholding by submitting a new Form W-4 to their employer or making additional or estimated tax payments.
Income tax withholding is generally based on the taxpayer's expected filing status and standard deduction. Adjusting paycheck withholding could help prevent penalties for underpayment or result in a decrease in withholding.
According to the IRS, taxpayers should review their withholding early in the year, when the tax law changes, or when the taxpayer has experienced a life change.
- Life Change Lifestyle - Marriage, divorce, birth or adoption of a child, home purchase, retirement, filing chapter 11 bankruptcy
- Wage income - You or your spouse start or stop working or start or stop a second job
- Taxable income not subject to withholding - Interest income, dividends, capital gains, self-employment income, IRA (including certain Roth IRA) distributions
- Adjustments to income - IRA deduction, student loan interest deduction, alimony expense
- Itemized deductions or tax credits - Medical expenses, taxes, interest expense, gifts to charity, dependent care expenses, education credit, child tax credit, earned income credit
Significant Decline in Gross Receipts
Income taxes are pay-as-you-go. By law, taxpayers are required to pay most of their tax as income is received. This can be done through paycheck withholding or making quarterly estimated tax payments for income not subject to withholding.