As we close out the year 2020, it is time to reflect on how much money we earned and give some of it back to the government. That’s right, it is tax season. 2020 was a tough year for many and it is going to be a bit more difficult when the time for filing taxes arrives. That is why it is important to start early and make sure you have all the correct documents. Whether you got a new job, kept your job, or lost your job, we all still have to pay our taxes like the person next to us.
Here are some key steps to start prepping for paying your 2020 taxes:
1. Gather your tax information
This means gathering all those bits of paper you have lying around your home such as your W-2 from your employer, your 1099 (if you were a contract worker), your unemployment income, your refund interest if you have any, and your stimulus check notice if you received one (more on that later). Also, make sure to update the IRS if your address or name has changed in the past year.
2. Secure your Individual Tax Identification Number (ITIN)
If you are not eligible for a Social Security Number, then obtaining your ITIN is very important. These tax processing numbers can expire so make sure yours is up-to-date in 2021 for when you file. The IRS is suggesting if you need to renew your ITIN in 2021 that you do the application now so that there will be no delays when you file your taxes.
3. Check if both you and your employer have withheld enough tax
Traditionally, your employer withholds taxes for you, but you will also need to make sure they have withheld enough. The IRS has a tool to help you figure out an estimate of your withholdings so you can better prepare for your payment. If you are self-employed or did contract work with a 1099, your employer most likely didn’t withhold any tax so you should have done quarterly estimated payments. The last 2020 quarterly payment is due on or before January 15th, 2021. Anyone can do these payments, but they are especially helpful for those that have to pay both the employee and employer parts of taxes.
4. Economic Impact Payment (aka the Stimulus Check)
If you got the payment back at the beginning of the pandemic. You must keep your Notice 1444, Your Economic Impact Payment for tax purposes. This will help if you believe you have been underpaid or did not receive your payment correctly. According to the IRS, the payment is not included in your gross income. You will not need to pay Federal taxes on the payment. This will not reduce your refund should you receive one nor will it increase how much you owe in Federal income tax.
If you didn’t get your first check or didn’t receive the correct amount, then you can file a claim to get it in 2021. When you fill out your 1040 Form or 1040SR Form, you might be able to get the Recovery Rebate Credit. Make sure to have your Notice 1444 handy to state how much you were not paid.
If you no longer qualify for the stimulus check that you received, you are not required to pay the money back to the government.
At RPM Mortgage, our Loan Advisors are well versed in preparing for a home purchase, and the taxes associated. Reach out to one of our team members to discuss any questions you have in more detail.