 Internal Revenue Service IRS Tax News 2021 Return Done. Next step, use the IRS Tax Withholding Estimator to make sure withholding is right for 2022. Huh, that's not the next step I took. I went right to the bar, ran up a tab, promising to pay it back in exactly 21 days when my refund was supposed to get here. Maybe that wasn't a good idea. In any case, IR 2022-81, April 13th, 2022 Washington, the Internal Revenue Service today urged any taxpayer now finish up their 2021 tax return to use the IRS Tax Withholding Estimator. There's a link to that here to make sure they're having the right amount of tax taking out of their pay during 2022. So once we're done with the tax for 2021, we could put our focus on 2022. And as we know, we have a pay-as-you-go type of tax system. So for 2022, as we earn income, we gotta be paying it to the IRS in 2022. And if it was a perfect world, if the tax code wasn't so complicated, the process would basically be similar if you're familiar with the payroll taxes like the Forms 941, which are basically information returns you had already paid the taxes. That's how the income tax should be. In other words, in a perfect world, if it were an easy flat tax, for example, you would be paying the tax as you earn the money in the tax year of 2022. And then when you file the taxes by April 15th of 2023, it would be basically an information return, recalculating the tax that you owe, which you had already paid, and then showing that you already paid it, and then you wouldn't owe anything or get any refund at that point in time. Now we know that it's not a perfect world and the tax code is far from perfect. It's a very imperfect type of thing here. So we cannot possibly get the exact amount of taxes that we're gonna owe as we pay them because the progressive tax structure in and of itself means that as we earn money, I can't just multiply it times a flat tax. And so we got this progressive tax. I gotta try to figure out how much I'm gonna owe for the entire year and then try to apply the proper progressive tax system to it, which is quite complicated. You need software just for that. And of course, you've got these credits that are gonna be involved, refundable credits, non-refundable credits, deductions and so on, some business, some personal, which clearly muddies the water. So what do we try to do? Instead, we try to shoot for a refund. We don't shoot for a refund because we want a happy day like a birthday or something on April 15th. We shoot for a refund to avoid the sticks of penalty and interest that the IRS wields around here. Now, normally it's pretty straightforward if you have a very stable tax structure and if you have a very stable income structure and family household, even though the code is quite complex, meaning if the code doesn't change a lot from year to year, your income doesn't change a lot from year to year and your general kind of life structure doesn't change a lot from year to year, then you can kind of base your withholding for 2022, for example, on 2021. Unfortunately, for basically everyone, at least one, if not all of those kind of things are not the same from year to year in these last couple of years. So in other words, we know if everyone is dealing with the tax code is changing dramatically, especially with these refundable credits, which is more on the low end side of things, where people usually they didn't have to do as much tax planning and the tax return was actually easier on the lower income side of things. But now with all these refundable tax credits kind of working into play, those are actually kind of complex. So you got the child tax credit, advanced child tax credit, the earned income tax credit. And then, and now you've got these recovery rebate credits which are, you know, may or may not contend, you would think not at this point in time, but those things obviously change the tax code and that tax code could change in the future. So you kind of have to make your projections based on what the next year's tax code is gonna be because the tax code is not a stable thing as we've been going through this kind of dip that we've been looking at. So that's one thing that you kind of want to use the software for. Other thing is many people are going through different kind of work scenarios where they were working somewhere and possibly they're working somewhere else, possibly they're picking up part-time work and some of the full-time job, possibly you're picking up gig work and all these types of things mean that your prior year taxes for 2021 might look way different than 2022. So you can't really base your withholdings on 2021 like you would because now the tax code is different and your job situation is different. So you're gonna have to put an estimator on that and three, people's life situations could differ. So obviously as, you know, if you go, if you get married or you get divorced or people, you know, dependence become dependence or not dependence at some point, then those things obviously also have an influence on the tax code. So under those conditions, I think almost everyone could basically use some kind of projection software and this tax withholding estimator tool is getting better and better at basically being projection software that can help you to kind of figure out what your withholding should be for 2022. So I think it's a good tool, check it out. So this online tool offers workers, self-employed individuals and retirees who have wage income, a user-friendly resource for effectively tailoring the amount of income tax withheld from wages. 2021 refund too big, too small, surprise tax bill. If any of these apply, the tax withholding estimator can help anyone make sure it doesn't happen again by having the right amount of taxes taken out for 2021. So usually, if you look at your last year taxes, 2021, if you got a huge refund, that's actually not really good. I mean, it's still good because then, you know, I can cover my bar tab that I just spent hoping the refund was, but it's not really what you're supposed to be doing because you'd like to get the money during the year when you get your paycheck. So if you got a really big refund, it's because you didn't really estimate your taxes properly because it should be a modest refund. If it's too small or if you owed money, that's obviously a problem because then you're probably, if you owed money, you're gonna owe penalties and interest on top of it. That's what you're trying to be avoiding. That's why you shoot for a refund. So that's gonna be the point. So in those cases, you wanna do an estimate. If that happened, if you got, if you owed money or if your refund was super big, then you wanna use the estimator for sure. But even if that wasn't the case, if you had substantial differences from the prior year to the current year, and even if you didn't with the tax code changing, you might wanna do the withholding estimator again for 2022 to project it not on the prior year, but on what you expect to happen in the current year. So benefits of using the estimator for employees withholding is the amount of federal income tax taken out of their paycheck. Taxpayers can use the results from the tax withholding estimator to determine if they should complete a new form W-4 and submit it to their employer. For example, checking withholding can ensure the right amount of taxes withheld and prevent any unexpected tax bill or penalty at tax time and determine whether to have less tax withheld upfront, thereby boosting take-home pay and reducing any refund at tax time. When should taxpayers use this tool? The IRS recommends checking withholding at least once a year for anyone who has just finished filing their 2021 tax return. Now is a particularly good time to do it. So they always want something over there, those IRS people. But after you finished the 2021, then you have a good idea of what happened in the prior year, because you've recapped it. So that's a good time. And it's still pretty early in the year, which is usually when you want to now adjust your withholdings for the current year so that you don't have to make some big adjustment. If you owe money in 2022 and you don't really figure out that you're gonna owe money, you don't use the withholding estimator, in other words, until the end of the year, then you're gonna have to do a drastic change to the amount of money that you're gonna withhold to avoid penalties and interest, to avoid owing money and then getting hit with the sticks of penalties and interest. If you do it at the beginning of the year, you should be able to more evenly put your withholdings throughout the year and it should be a less of a big kind of shock or swing from time period to time period. So it's also a good idea to use this to a right after a major life change, such as marriage, divorce, home purchase, or the birth or adoption of a child. So anytime one of these big things happen, marriage, divorce, you should do the withholding estimator and then base your decision upon the result. No, that's just good. But any of those things happen, then obviously it's gonna have an impact on the taxes. So you probably wanna recheck your withholding estimator thing. So what records are needed? The tax withholding estimator results are only an accurate as the information entered to help prepare the IRS recommends that the taxpayer gather their most recent paid statements and if married, their spouse. Information for other sources of income and their most recent income tax return 2021 if possible. While the tax withholding estimator works for most taxpayers, people with more complex tax situations should instead use the instructions in publication 505 tax withholding and estimated tax. This includes taxpayers who alternative minimum tax or certain other taxes and people with long-term capital gains or qualified dividends. Now, obviously these people would probably if you're subject to alternative minimum tax and have long-term capital gains and so on, you probably have a more complex situation cause you have more money. So in that case, you probably have software. You probably wanna work with an accountant who has tax, good tax, you know, more of a better tax software than this tax withholding estimator tool which is basically a projection tax software at this point to do those projections. Still working on 2021 return, the IRS urges anyone still working on 2021 return to make sure they have all their year-end statements in hand before filing. Based on besides all W2s and 1099s, this includes two new letters issued by the IRS. People who received an advance payment of the child tax credit will need to reconcile or compare the total received in advance with the amount they're eligible to claim. Letter 6419 shows their total advanced child tax credit payments to help taxpayers reconcile and receive the full amount of the 2021 child tax credit. So that's a new thing that you gotta take into consideration and you wanna get it right so it doesn't delay the return. If I get that wrong, my refund won't get here by the time my bar bill is due in 21 days, most likely. And then that's a problem. While most eligible people already received their stimulus payments, people who are missing a third stimulus payment or got less than the full amount may be eligible to claim a recovery rebate credit on their 2021 federal tax return. Letter 6475 shows their total third round of economic impact payments. Notice, we're talking 2021. We're just looking round number three there. Alternatively, anyone can securely sign into their online account to access information. So you got the online account. I don't think they're requiring facial recognition anymore so they're not trying to rule the world with facial recognition to log into your IRS account for some reason. They were doing that for a while, but they stopped, they backed off a bit. So you can log into that one and check out these advanced payments there. So they have the child tax credit payment and the economic impact payment. So taxpayers should also e-file and choose direct deposit to avoid processing delays and help with faster delivery of their refund. For most Americans, so tax filing deadline is April 18th, 2022. For residents of Maine and Massachusetts, the deadline is April 19th, 2022. What? That's not fair. That's not fair. Americans who live and work abroad have until June 15th, 2022. Those who need more time to file can get an automatic extension to file until October 17th, 2022. Their extensions don't change to April 18th payment deadline. It is not an extension to pay. So if you go on extension and you owe money, then they're still gonna hit you with the penalties and interest. They're gonna hit you with the penalties and interest. Those sticks. More information is available on irs.gov. Then after they file, taxpayers can use the tax withholding estimator to help them update their withholding for 2022, the IRS says. So when you're done paying us for 2021, you can look up and you can start working on how much you owe us for 2022. We have all the tools for to help you with that. Additional information, the tax withholding estimator frequently asks questions. There's a link to that here and the paycheck checkup. There's a link to that here as well as all the other good stuff, link stuff here. And there'll be a link to this in the description.