With the fallout from COVID-19 affecting every taxpayer this year—whether it’s a change in employment status or pay fluctuations amid the pandemic—we wanted to take a minute to once again stress the importance of checking your pay stubs on a regular basis to ensure that your withholding is as you want it to be.
Many of our clients experienced sticker shock when the Tax cuts & Jobs Act of 2017 skewed the tax tables, and their withholding elections left them unexpectedly owing money.
We know that most people receive their payroll check through direct deposit, and paystubs are usually issued by e-mail these days. As a result, most pay stubs go unchecked, and unfortunately by the time the withholding deficit is discovered it’s already the following year—and too late to do anything about it.
To avoid this, we recommend making a habit of checking your pay stubs every month to verify the withholdings are per your instructions—even if you are not not paid via direct deposit.
And if you need to make adjustments, you can contact your HR benefits people to fill out a new w-4.
Let’s face it: we’ve just said goodbye to a year like no other. And though it’s “officially” over, we are continuing to adapt our best practices to align with the changing tax laws, as well as the most up-to-date health and safety guidelines. With the benefit of our clients in mind, we’ve put together the list below to help ensure that we keep things running smoothly and efficiently this season, despite the limitations we are all facing.
You do not need to contact our office to request that a Tax Year Organizer be sent to you. Tax Organizers will be delivered by regular mail or uploaded on the portal, depending on how you have received them previously. Our only automated delivery method for organizers is via the portal. Keep an eye out for an e-mail from Secure File Pro indicating your organizer has been placed in your portal folder.
Make sure you are on our e-mail list! We know that everyone gets too many e-mails, but this is still the fastest and most effective way for us to communicate with clients, and we generally send no more than two e-mails per month. If we do not currently have your preferred e-mail address, then please take a minute to sign up for our email list or update your information through the opt-in link on our website home page or by sending your first and last name and e-mail address to: [email protected].
We will begin e-filing on January 27, 2021. With IRS staffing shortages, processing could take longer than usual this year, so we are aiming to get a jump on the season by starting our clients’ e-filings as soon as we can.
Provide us with all your information, all at one time. Missing or incorrect information, or information that comes in piecemeal causes hiccups that may cause your return to get pushed back. The Organizer we send out is the best tool we have to aid us in processing your return. The more accurate and complete the organizer is, the quicker we can file your return.
Be sure to include Our 2020 Income Tax Checklist with your paperwork. We created this checklist because we have learned that if a return is delayed because any of these items are missing it can take up to nine months to correct since IRS access is limited due to offices being closed and employees working remotely. This form must be completed in order for us to process your tax return.
Collect any questions you have about your return and include them in writing with your organizer. Unfortunately, we are not in a position to answer questions outside of the time that we are dedicating to your individual return. For this reason, we ask that any questions you have be submitted on a separate sheet along with your paperwork. That way we can address them and provide answers while we have your information in hand and eliminate the guesswork!
Keep your medical receipts—literally. If you think your medical and dental expenses in 2020 might be high enough to deduct, please add up what you spent, and provide us only the total amount. Sending us your receipts can not only jeopardize the privacy of your records, but it will delay processing your return since we do not have the staff to add them up on your behalf.
Visit our website for office updates. Due to the pandemic we have changed how we operate in this new climate. To keep our employees and clients safe and minimize the potential spread of the COVID-19 virus, we will not be having in person appointments, but we will be establishing a safe and secure drop off and pickup protocol for you and will post it on our website. Our newsletter will be the main line of communication as the COVID regulations for businesses change, so please make sure you are on the list!
Please be patient. We have put a lot of thought into how we can tackle this tax season with as few speedbumps as possible. And like so many of you, we—and the IRS— continue to work within the limitations of health and safety guidelines. We sincerely appreciate your patience as we work to get your returns taken care of quickly and accurately!
We are confident that these steps will help all of us get through this unusual tax season with ease.
Over the years, we’ve learned a lot about what the IRS looks for on your tax return. We put together the list below for our clients to help them avoid the pitfalls of missing or inaccurate information that can delay tax returns by 6 months or more. Especially during the continuing pandemic at the time of this posting, since the IRS is working with limited staffing, you’ll want to make sure the information you provide is accurate and complete. We encourage you to “check off” the items on the list before submitting your tax paperwork to ensure a smooth and efficient filing!
1
STIMULUS PAYMENTS If you received a stimulus payment in 2020 and January 2021 your tax professional needs to know the amount of the payment you received. $________________ This payment is not taxable but the amount must be reconciled on your tax return.
2
UNEMPLOYMENT If you collected unemployment benefits in 2020 you will receive a 1099-G form in the mail in by January 31, 2021. We have included an image of the 1099-G form below for reference. FRAUD ALERT for Massachusetts residents: If you receive a 1099-G form and did not collect unemployment benefits please contact the Massachusetts Department of Unemployment Assistance (DUA) at 617-626-5647 immediately! Likewise, if you did receive unemployment benefits and do not receive a 1099-G form, again, you will need to call MA DUA at 617-626-5647.
3
ESTIMATED TAX PAYMENTS If you made estimated tax payments in 2020 please provide your tax preparer copies of the cancelled checks. We have seen issues this past year with these checks not being cashed, and not being applied properly. If we have copies of the cancelled checks we can speak with IRS on your behalf to resolve any issues that may arise.
4
FORM 1095A (Health Connector for Massachusetts Residents) If your health insurance is through the Massachusetts Health Connector please provide your 1095A. This form will be mailed to you by January 31, 2021. If your insurance is through the health connector, IRS will not process your tax return and delay your refund. Please see a copy of the 1095A form below for reference. You can also obtain your form online at welcome to health connector | health connector (mahealthconnector.org)
5
RENT PAYMENTS DURING COVID If you paid rent in the last calendar year please indicate the total rent you paid in 2020 $____________.
6
NEW BABY IN 2020? Congratulations! Please make sure to provide the baby’s date of birth and social security number. This information is necessary to determine if you qualify for an additional stimulus payment, as well as the normal credits for a child.
7
DEPENDENT CHILD FILING HIS OR HER OWN TAXES THIS YEAR? Tax preparers need to know if you have dependent college-age kids who are filing taxes and “claiming” themselves under their Social Security Number. This will trigger the IRS to disable your ability to e-file your own return, forcing you to file on paper and have your return delayed by as much as 6 months.
8
PERSONAL CONTACT INFORMATION Have you changed addresses, phone numbers, e-mail addresses, or jobs since last year? Make sure your tax preparer has your up-to-date information!
Below is an example of Form 1099-G. Individuals who collected unemployment in the last year should receive this form in the mail by January 31, 2021, and must include it with their tax paperwork. Please note: This is for reference purposes only and cannot to be downloaded, reproduced, or used for filing.
Below is an example of Form 1095-A. Individuals who are insured through the MA Health connector should receive this form in the mail by January 31, 2021, and must include it with their tax paperwork. Please note: This is for reference purposes only and cannot to be downloaded, reproduced, or used for filing.
Some of you may have already received your money from the second stimulus package that recently passed but it is important to note that the amounts and calculations are different this time around.
The Basics:
IRS began issuing payments via direct deposit on December 29, 2020.
Standard payment amounts are $600 for each qualifying U.S. citizen, resident alien, and dependent child under age 17, based on adjusted gross income (AGI) limits. (See chart below)
Payment amounts are reduced by $5 for every $100 above the determined income thresholds.
Confirmed direct deposit accounts will receive payments first, followed by mailed paper checks.
Please note: The IRS has not set up a procedure to change your direct deposit information through their website at this time, so if your direct deposit information has changed in the last year, you will likely need to wait for a paper check. Attempting to change your direct deposit information through the IRS website at this time may jeopardize your electronic filing for tax year 2020.
How much can you expect?
The graphic below shows the standard payments based on income limits.
Payments are reduced by $5 per $100 above the qualifying income thresholds, and will phase out completely at $87,000 AGI for individuals and $174,000 AGI for couples filing jointly.
We found an article on the Forbes Advisor website that provides an excellent comprehensive overview of the second round stimulus package, including a payment calculator and notable changes from the original CARES Act that was passed last spring. You can read the entire article here.
The IRS website also issued a press release regarding details of the second round stimulus, which can be found on their website here.
Just like taxes themselves, annual changes to the IRS tax code are a certainty. Luckily, the changes are mostly minor for 2021, but there are still a number of changes to provisions and limits that will affect millions of taxpayers.
For instance, now that most people take the standard deduction, slight increases for inflation are welcome news. According to the IRS, here are the new amounts for 2021:
Filing Status
Standard Deduction for 2021 Tax Year
Change from 2020
Single
$12,550
+$150
Married filing jointly
$25,100
+$300
Head of household
$18,800
+$150
Married filing separately
$12,550
+$150
Retirement Accounts
There are measurable tax benefits to putting money into retirement accounts, which is why IRS puts limits on just how much of that money you can deduct or contribute in any given year.
For the coming year, the actual allowable contribution amounts will stay the same, but there are changes in the income limit for some types of accounts. For example, both traditional and Roth IRAs have income thresholds , and allowable contributions and deductions gradually phase out as income increases and/or surpasses those limits. Again, the changes are minor for the coming year, but valuable to know. Here is the IRS chart outlining the income thresholds and phase-out limits:
Filing Status
Roth IRA Phase-Out Range
Traditional IRA Phase-Out Range if Worker Has Employer-Sponsored Retirement Account
Traditional IRA Phase-Out Range if Spouse Has Employer-Sponsored Retirement Account
Single
$125,000 to $140,000
$66,000 to $76,000
N/A
Married filing jointly
$198,000 to $208,000
$105,000 to $125,000
$198,000 to $208,000
Married filing separately
$0 to $10,000
$0 to $10,000
$0 to $10,000
2021 Tax Brackets
Tax brackets are changing slightly for the coming year also. It can be hard to say precisely what bracket you’ll end up in until you have figured out your AGI (Adjusted Gross Income) for next year, but we have provided the IRS tables below for singles, married filing jointly, and married filing separately to give you an idea of the adjusted ranges.
Brackets for Singles
Bracket for Singles
Tax is this amount + this percentage
Of the amount over
$0 to $9,950
$0 plus 10%
$0
$9,950 to $40,525
$995 plus 12%
$9,950
$40,525 to $86,375
$4,664 plus 22%
$40,525
$86,375 to $164,925
$14,751 plus 24%
$86,375
$164,925 to $209,425
$33,603 plus 32%
$164,925
$209,425 to $523,600
$47,843 plus 35%
$209,425
Above $523,600
$157,804.25 plus 37%
$523,600
Brackets for Married Filing Jointly
Bracket for married filing jointly
Tax is this amount + this percentage
Of the amount over
$0 to $19,900
$0 plus 10%
$0
$19,900 to $81,050
$1,990 plus 12%
$19,900
$81,050 to $172,750
$9,328 plus 22%
$81,050
$172,750 to $329,850
$29,502 plus 24%
$172,750
$329,850 to $418,850
$67,206 plus 32%
$329,850
$418,850 to $628,300
$95,686 plus 35%
$418,850
Above $628,300
$168,993.50 plus 37%
$628,300
Brackets for Married Filing Separately
Bracket for married filing separately
Tax is this amount + this percentage
Of the amount over
$0 to $9,950
$0 plus 10%
$0
$9,950 to $40,525
$995 plus 12%
$9,950
$40,525 to $86,375
$4,664 plus 22%
$40,525
$86,375 to $164,925
$14,751 plus 24%
$86,375
$164,925 to $209,425
$33,603 plus 32%
$164,925
$209,425 to $314,150
$47,843 plus 35%
$209,425
Above $314,150
$84,496.75 plus 37%
$314,150
There are a number of other changes to various tax provisions for 2021 that may affect your situation. These include capital gains and estate taxes.
We have found a comprehensive overview of the 2021 changes on The Motley Fool websitehere. It’s definitely worth a look as you start thinking about tax planning for the New Year!
