By Denise Dooley
In this time of mobile banking, direct deposit, and contactless everything, when is the last time you (or your employees) looked at anything more than the net pay amount of your check stub or direct deposit notice? Giving your paycheck an annual check-up is a five-minute task that could save a lot of stress come tax time.
Start with the basics:
- Is your name spelled correctly?
- Is your address current and/or accurate for where you want your W2 sent?
- Is your social security number correct? (If your check stub doesn’t show the full nine-digit number, confirm with your employer.)
These might seem overly simple, but keep in mind: no matter how automated and touchless the process, there is generally some opportunity for human error – especially if you have changed employers, or if your employer has changed payroll processing systems during the year.
If you’ve had major life changes – marriage, divorce, birth or adoption of a child, bought a house, etc., then it’s quite likely that some of your basic information needs updated, and it’s almost certain that you need to fill out an updated W4. Your employer should have forms or you can print one from here: https://www.irs.gov/pub/irs-pdf/fw4.pdf
For a more thorough review of your check stub, look at your federal and state withholdings for year-to-date. The IRS offers a handy online tool to help you get a good sense of whether you’re on track for federal withholdings. https://www.irs.gov/individuals/tax-withholding-estimator Not many states offer such a convenient guide, but you can compare to your prior year’s tax return or consult with your tax advisor to make sure you’re on track for this year.
With the tax law changes that took effect for your 2019 tax year, I’m sure we all hoped that 2020 would be a year with fewer surprises. I hate to even mention the global pandemic, but if you’ve been affected, it will almost certainly impact your tax situation. Definitely consult with your tax advisor if that’s the case.
One thing to keep in mind if you’re considering changing your withholdings: be careful not to under-withhold. This caution isn’t about whether you will have a payment due with your return or whether you get a refund. It’s about avoiding an underpayment penalty. The IRS has safe-harbor options available to help taxpayers avoid the penalty. This is another topic on which you should consult with your tax advisor.
Denise Dooley | Accounting Specialist