In this 3-part guide, we will explore where your tax dollars go, some of the ways tax filing may look different in 2022, and what you can do to prepare. Keep in mind, this guide is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your strategy.
Get a checkup: As a starter, the I.R.S. urges taxpayers to conduct paycheck checkups.
The agency provides tools and resources to help you calculate the correct amount to have withdrawn
from your paycheck.
The calculator may help you determine if your employer is withholding adequate amounts from
your paycheck.
The calculator asks for your projected gross income, your current withholding number, the current amount of federal taxes withheld, and other paycheck-related questions.
The calculator leads you through various screens that require you to enter the requested numbers into boxes. The calculator looks similar to a tax-filing form.
The final figure: Once the calculator generates the estimated taxes you can expect to owe or be refunded, it offers suggestions on how to change your withholding amount or request that additional money be withheld from your check.
If the calculator shows you are projected to owe taxes at the end of the year, you may file a new Form W-4, Employee’s Withholding Allowance Certificate, following the guidance provided by the calculator. The IRS-provided calculator is designed to provide feedback based on certain assumptions. It is not intended to provide specific tax, legal, or accounting advice. The calculator is not a replacement for real-life advice,
so please make sure to consult a professional before modifying your tax strategy.5
Suggestions may include changing the number of allowances you are claiming or requesting that your employer withhold additional money.
Taxpayers who receive pension income may use Form W-4P.Once completed, send the form to your payer if you are making changes.6
What Do You Need to Have to Use the Calculator?
To generate a calculation, you will need to have these documents:
- A recent pay stub
- A copy of a completed Form 1040, which will help you estimate your income
The calculator will not ask you to provide personal or private information. It will, however, ask you the number of children you expect to claim for the Child Tax Credit and the Earned Income Tax Credit.
Taxpayers with more complex tax issues may follow the instructions in Publication 505, Tax Withholding and Estimated Tax.7
Who Should Use the Calculator?
The IRS urges taxpayers who have questions or concerns about changes in the tax code to use the calculator. Specifically, you may want to check your withholding if you meet the following criteria:
- Have a two-income household
- Have two or more jobs
- Work only part of the year
- Can claim child tax and other credits
- Have dependents who are 17 and older
- Itemized your deductions last year
- Are a high earner or have a complex tax return
- Received a large tax refund or paid a large tax bill for 2020
How Long to Keep Documents?
The IRS provides recommended timelines for retaining financial documents:11
- You should keep your tax records for three years if #4 and #5 below do not apply to you.
- You should keep records for three years from the original filing date of your return or two years from the date you paid your taxes. Select whichever is the later date. This is if you claimed a credit or refund after you filed your return.
- You should keep your records for seven years if you claimed a loss from worthless securities or a bad debt deduction.
- You should keep your records for six years if you failed to report income that you should have, and the income was more than 25% of the gross income listed on your return.
- Keep records indefinitely if you do not file a return.
- You should keep employment tax records for at least four years after the due date on the taxes or after you paid the taxes. Select whichever is later.
Damian Sylvia
Retirement Income Solutions
Office: 732-508-6044
Direct: 732-284-0902
Email: Damian@MyFinancialSolution.org
Website: RetirementSolutionsNJ.com
Sources:
- Forbes.com, December 9, 2021
- SSA.gov, January 24, 2022