It’s the beginning of the year, which means the IRS is busy sending out all sorts of tax changes and alerts. Let’s break them down.
First, let’s start with a bit of good news: Your taxes aren’t due until April 18. That’s because there’s a little known holiday in Washington, DC that will be observed on April 15, and April 16 and 17 fall on the weekend. Taxes can’t be due on holidays or weekends, so you get an extra weekend!
Of course, if you’re getting a refund, there’s no reason to wait to prepare your taxes. The software makes it so easy, that you might as well get it down early. If you discover you owe, you can wait until the last minute to send your payment, but at least you’ll have the paperwork monkey off your back.
Along with the extension comes a delay for tax filers who itemize, claim the Higher Education Tuition and Fees deduction, or claim the Educator Expense deduction (teachers). That’s because Congress changed the tax laws at the last minute and the IRS needs extra time to reprogram their computers. But, you can still file around mid-February. I often find that some of my documents don’t drift in until the end of the first week of February anyway, so the delay shouldn’t be a huge burden for most people.
Updated Withholding Calculator
If you were planning to update your withholding because you received a raise, received a pay cut, or had a life change, you’re going to have to wait a little longer to use the calculator at IRS.gov. It also has to be updated to reflect the new tax rates and laws. You can use it to get a rough estimate now, because this year’s brackets and deductions haven’t changed that much from last year, but check back in February to make sure your withholding is correct.
Updated Income Tax Brackets
This year’s income tax brackets have been released. The lowest rate increased the income threshold by $500 and the rest are equally small. The standard deduction only increased $200, which is to be expected given our current economic situation/low inflation.
Brackets courtesy of FiveCentNickel.
Remember, you don’t pay the same amount of tax on the whole salary if you’re in the higher tax brackets. You only pay the higher rate for the amount above the lower threshold. So, if you earn $70,000, you don’t pay 25% on all of that, while someone who makes $68,000 only pays 15%. You both pay 15% on the amount up to $69,000, then you would pay 25% of the remaining $1000.
When I said last week that my husband and I were getting a refund because his four months without taxable income pushed us into a lower tax bracket, I was actually saying that we had less taxable income, therefore all of it is in the same tax bracket, which saved us a tiny bit on our taxes. Not earning money for four months was the big saver, but it also put a dent in our financial goals!