The first couple months of a new year usually mean committing – or not committing – to resolutions, establishing new personal goals, and plotting out the family calendar for the year ahead. The first couple months of the new year also mean that state and federal taxes once again take center-stage. W-2s start to flood mailboxes. As the first paychecks of the new year are cut, changes may appear on income taxes on payroll statements. Coming life changes cause us to begin considering updating tax withholdings. And every year there seems to be a new set of rules or special circumstances, new forms to fill out or a new technological feature added to the tax filing process for which we must prepare.
To help ease the process as you begin to gather tax documents and make tax changes in preparation for the year ahead, I have put together the following Frequently Asked Questions and answers with resources from the Internal Revenue Service (IRS).
What are the tax changes for this year?
Each year, new changes go into effect within our tax laws. These changes affect anything from first-time homebuyer tax credits, to standard mileage rates and even the date tax returns are due to be filed. For example, this year tax returns are due April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia, even if you do not live in the District of Columbia. It is important that you are aware of these changes. The IRS highlights any tax changes for the current tax year in the “What’s New” section of the Forms instructions pages. You can view a list of tax changes in the “What’s New” section for Form 1040, Form 1040A, Form 1040EZ, or Publication 17 at http://www.irs.gov/faqs/faq/0,,id=199544,00.html.
Why has my income tax gone up this year?
Some taxpayers might have noticed that the amounts being withheld for federal taxes so far in 2011 have been higher than they were last year. Here’s why this may have happened: A tax credit that was included in the stimulus bill was available for 2009 and 2010. The credit was refundable, equal to 6.2 percent of earned income, and capped at $400 for single filers and $800 for joint filers. However, it expired at the end of 2010 and has not been extended.
In its place, Congress included a payroll tax holiday for wage earners and the self-employed in the tax compromise bill passed in December. The provision grants employees and the self-employed a reduction of two percentage points (from 6.2 percent to 4.2 percent in the case of employees) in their share of the federal payroll tax for Social Security in 2011 only.
Though the payroll tax reduction went into effect on Jan. 1, not all employers reportedly have implemented it through modifications to their payroll software, especially smaller employers, which could be why your income tax has gone up. For many individuals, this increase is temporary. Once the payroll tax holiday is fully implemented, employees and the self-employed with incomes in excess of $20,000 will realize an increase in their take-home pay compared to 2010. However, if you have specific questions about your individual income taxes, you should contact the IRS directly.
How do I adjust my tax withholdings?
The IRS urges workers to review their withholding at the beginning of every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms. You can download a W-4 form here: http://www.irs.gov/pub/irs-pdf/fw4.pdf. You can also use the IRS Withholding Calculator to help avoid having too much or too little federal income tax withheld from your pay. For more details on using the calculator, visit http://www.irs.gov/individuals/page/0,,id=14806,00.html.
How do I find the right tax forms?
You can download tax forms by publication number or topic, and also look up instructions for each specific form on the IRS website. The tax filing forms are available at http://www.irs.gov/formspubs/index.html. You can also order the forms by mail or occasionally find paper copies of tax forms at your local library or post office.
How do I contact the IRS?
There are a number of ways to contact the IRS by phone or online. A list of contact links at the IRS tells you exactly who to contact depending on specific issues you may be faced with. They can be accessed here: http://www.irs.gov/contact/index.html. For your convenience, any tax questions you have that cannot be answered online or over the phone can be brought to
Taxpayer Assistance Centers located nationwide. The centers accept walk-ins, but may require appointments in special circumstances. The centers will help you with inquiries or adjustments to tax accounts, questions about IRS letters and notices, and payment plans for those who owe and cannot pay the full amount. To locate a center near you, use the Taxpayer Assistance Center locator: http://www.irs.gov/app/officeLocator/index.jsp.
If you have additional questions regarding your taxes, or have further questions regarding these resources, visit the IRS website at www.irs.gov.