![]() They can be refundable or non-refundable. Tax credits reduce your tax bill by giving you dollar-for-dollar credit towards what you owe e.g., if you are eligible for a $500 tax credit, your tax bill will be reduced by $500. Have more questions? Visit this FAQ page at the IRS. ( Note: The IRS says this calculator is currently down for maintenance until at least early February 2022.) ![]() This will help you decide if you need to raise or lower your withholding by filling out a new W-4. You will need your (and your spouse’s, if applicable) most recent pay stubs from each job and about an hour to answer the questions. The best thing to do is to complete a “paycheck checkup” with the withholding calculator at the IRS website. Now, your withholding is based on the number of jobs and amount of income in your household, as well as your tax filing status (single, married filing jointly, married filing separately or head of household). While there was nothing illegal about that, it resulted in a large tax bill the following year, resulting in debt accrual for many people. Many purposely kept their allowances low to get a bigger tax refund at tax time - talk about enforced saving! Others would intentionally raise their allowances to increase their take-home pay. The fewer allowances you claimed, the more money was taken out for taxes, and vice versa. The allowances on the old W-4 helped determine how much was taken out of your check each payday. ![]() Due to changes in the law, currently you cannot claim personal exemptions or dependency exemptions.” You might be thinking, “What does that even mean?” Let me try to explain. In the past, the value of a withholding allowance was tied to the amount of personal exemption. According to the IRS website, “This change is meant to increase transparency, simplicity, and accuracy of the form. Before 2020, your allowances were based on how many “allowances” you claimed on your W-4. In 2020, the Internal Revenue Service (IRS) made significant changes to the tax withholding process, starting with the W-4 form. If you typically get a refund, this can be a great time, and you might look forward to it! For others, tax season may result in anxiety, frustration and a big bill add the confusion many of us feel over common tax terms, and it can all become one big headache! Learning these key terms before you prepare your 2021 taxes can ease that headache a bit. ![]()
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