Tax Tip: Mid-Year Tax Checkup
Summertime is the perfect time for a mid-year tax checkup. A tax checkup will help you avoid being surprised with a potentially large tax bill and may help uncover ways you can save throughout the rest of the year. Keep in mind that big tax breaks were enacted for the 2021 tax year, but most of those tax law changes expired at the end of 2021. As a result, the child tax credit and credit for other dependents, child and dependent care credit, Earned Income Tax Credit (EITC) and other popular tax breaks are different for the 2022 tax year than 2021.
Collect and keep your records and receipts. Record keeping can help you identify sources of income, track deductible expenses, and make preparing a complete and accurate tax return easier.
Create and/or sign into your individual IRS online account to view your federal tax records, manage communication preferences, make payments and more.
Perform a paycheck check-up
Pay close attention to your paystubs to help prevent end-of year surprises. Make sure the earnings are correct and that you have the proper amount of tax withheld. As time passes, life events like marriage, divorce, having a child, buying a home, or a change in income may affect your taxes. The IRS’s Tax Withholding Estimator will help you assess your income tax, credits, adjustments, and deductions, and determine whether you need to change your tax withholding. If a change is recommended, the estimator will provide instructions to update your withholding with your employer either online or by submitting a new Form W-4, Employee’s Withholding Allowance Certificate.
Remember, most income is taxable. This includes the following sources and more:
income from the gig economy; and
Consider making estimated tax payments
If you receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits, or pension and annuity income, you should make quarterly estimated tax payments. Log in to your online account to make a payment online or go to IRS.gov/payments.
Review your retirement contributions
Review contributions to your retirement plan, such as 401(k) and Individual Retirement Accounts (IRAs). If you want to maximize your contributions, run the numbers to see how much you need to save from your remaining paychecks this year. Increasing pre-tax retirement contributions reduces your taxable income for the year you contribute.
Report changes that may affect your health insurance Marketplace premiums
If you have health insurance through your state’s health insurance marketplace established under the Affordable Care Act, it is important to report changes that may affect your premiums. Changes in circumstances to report to the Marketplace include:
Changes in household income (including lump sum distributions from Social Security, retirement accounts, etc.);
Birth or adoption;
Marriage or divorce;
Moving to a different address;
Gaining or losing eligibility for other health care coverage; or
Other changes affecting income and your family.
If you want to see how a change of circumstance might affect your Premium Tax Credit (PTC), you can use the PTC Change Estimator. Remember to contact your Marketplace to report a change of circumstances.
Plan your health flexible spending arrangements
Check the balance of your flexible spending arrangement (FSA). FSAs allow you to put some of your pre-tax income toward qualifying medical, dental, and vision expenses, along with other health-related products and services. For 2022, workers can contribute up to $2,850.
While there are some provisions that may let your roll over some money into the next year, most FSAs are “use-or-lose.” Start thinking now about how you might use remaining funds in the second half of the year to ensure you don’t lose the money you contributed to your FSA account.