Although most filers get a tax refund, it’s not guaranteed. Even if you had taxes withheld from your paycheck all year, there’s still a possibility that you underpaid. Experiencing big changes in your personal finances can also impact your taxes. If you’ve gone through any of the following situations in 2020, you may you owe the IRS in April. So, start saving now.
You collected unemployment benefits
The pandemic affected more than people’s health. Millions saw their jobs disappear almost overnight. Collecting unemployment benefits can help you keep a roof over your head, but many people don’t realize that it’s not free money. Unemployment benefits are taxable. Depending on where you live, you’ll have to pay state taxes in addition to federal. The best thing to do is request to have taxes withheld upfront by completing form W-4V. Another option is to set aside a portion of each check so at least you’ll have the funds readily available when you file. Remember, you can do your taxes and file a simple return FREE when you use ezTaxReturn.
You withdrew money from your retirement account
Normally when you dip into your retirement early (before age 59 ½), you need to pay taxes on the funds withdrawn. In addition you’ll pay a 10% early withdrawal penalty. Because of the hardships of 2020 and thanks to the CARES Act, you can withdraw up to $100,000 from an IRA or 401k without the usual penalty. Remember, so far this exclusion was legislated for 2020 only and the distributions must be repaid over the next three years.
You got a raise or better paying job
Congratulations on your new salary! But remember, when your income increases, your taxes increase too. Anytime you experience a change in your finances, it’s a good idea to use a withholding calculator to ensure you’re paying the appropriate amount of taxes. If too little is withheld, you’ll owe Uncle Sam at tax time. But if you overpay, you’ll get the money back as a tax refund. Adjusting your withholding is easy, just complete and submit a new W-4 to your employer.
You no longer qualify for some credits and deductions
Enjoy the tax breaks while you can because there’s no guarantee you’ll be eligible for the same ones in the future. As life changes, so will your tax situation. For example, many parents benefit from the child tax credit. It is worth up to $2,000 per child, but your dependent must be 16 or younger at the end of 2020 to qualify. If your child celebrated their 17th birthday this year, you can’t use them to claim the credit anymore. But don’t worry, there are other money-saving tax breaks available and ezTaxReturn can help you find and claim them. Pre-register now to do your taxes the fast and easy way in 2021.