Withheld Enough Taxes?
It is September and schools and colleges are opening with many unknowns. Some businesses have only in the last few weeks been able to open. Some have decided to close permanently. If you have been out of work and collected unemployment this year, it is likely that you did not have any federal or New York State income taxes withheld from your checks.
While your concern during the COVID-19 shutdown was on getting the cash to pay expenses, you need to be aware of what the income tax bill or refund size may be for this year so you are not hit with a surprise come April that you would not appreciate receiving.
What do you do? Get your latest paycheck statement, total unemployment received along with other income, such as IRA distributions, and your last tax return and check with your tax advisor or go to the IRS website: "IRS.gov/individuals/tax-withholding-estimator" to perform a paycheck checkup. Just answer the questions and you will have an idea whether or not you need to adjust your tax withholdings. If you expect to owe, you have three choices: increase your tax withholdings on your paycheck, send in estimated tax payments to the government or wait until you file your 2020 tax return to pay the taxes you owe.
If you can make up your tax shortfall between now and December 31 through withholding increases, go ahead and fill out a new W-4 and IT-2104 and submit to your employer. You can always request a set dollar amount to be withheld if the calculation on the W-4 does not increase your withholding enough.
Another way is to pay in quarterly estimated income tax for the 2020 year (due September 15 and January 15) by paying online at IRS.gov/payments and at Tax.ny.gov. If you want to mail in a check, get the Form 1040-ES and IT-2105 from the IRS and NYS websites.
In case your cash flow is such that you cannot pay over the remaining months of this year or at tax time next year, then you can always request an installment payment agreement from both the IRS and NYS once you file your 2020 income tax return.
For business owners whose income has changed substantially in comparison to 2019, you should have your tax professional perform a tax projection to see where you stand. The income tax impacts of the Paycheck Protection Program loans and other factors are best discussed sooner than later with your tax advisor, then you can make necessary adjustments to your estimated tax payments.
As with nearly everything in life, the degree to which a change causes one to be upset is in direct proportion to what is expected. We have had enough unexpected change this year to last us for a very long time. Do yourself a favor now and check with your tax advisor to find out if your tax situation needs adjusting.
Enjoy this last month of summer!
Peter VanderWoude, MS, CPA, CGMA
Equus Advisors - Accounting and Tax Professionals