Tag: Taxes

 

3 Options for Paying Taxes If You Owe the IRS

By Rebecca Lake
April 6, 2020

If you have a balance due after preparing your tax return, you might need to come up with the money to avoid paying taxes and penalties. 

If you’re wondering how to pay the IRS when you owe money, here’s what you need to know. 

How to Find Out if You Owe the IRS

The easiest way to find out if you owe taxes is to complete your tax return

You can either go the DIY route and use an online tax prep software program, or you can hire a tax pro to do your taxes for you. 

If you file your taxes using Form 1040 or Form 1040EZ for 2019, you’ll plug in your income, deductions and taxes paid. There are three lines to focus on to determine whether you owe taxes to the IRS:

  • Line 16: Total tax liability
  • Line 19: Total tax paid
  • Line 23: Total amount you owe

Line 23 is the difference between the number on Line 16 and Line 19. In other words, the IRS adds up all the taxes you already paid for the year and then subtracts this from the amount it estimates you owe. The IRS does this based on your filing status, income and deductions. If you didn’t pay enough in taxes to cover what the IRS says you owe, then you’ll have to pay more when you file. 

On the flip-side, if Line 19 is more than Line 16, you’ll get a refund and this amount will show up on Line 21a. 

 

Why Do I Owe Taxes?

There are several common reasons you might owe taxes instead of getting a refund or breaking even. 

1. You didn’t withhold enough in taxes

If you work a regular job, it’s your employer’s responsibility to withhold taxes from your paychecks. The amount that is withheld is determined by the information you provide on your Form W-4

Withholding less money in taxes each pay period means you have more take-home pay. But it also means you could end up owing money to the IRS when it’s time to file. And of course, withholding too much money means you’ll get a refund. 

If you owe taxes this year and you think it’s because of your withholding, the IRS has a free tool you can use to figure out exactly how much to withhold going forward. 

2. You didn’t pay taxes on a side hustle or self-employment income

Starting a side hustle or small business can bring in some extra income. It can also result in a tax bill if you’re not reporting your income properly. 

If you have extra income that’s not taxed by an employer, you may need to pay estimated quarterly taxes. Otherwise, you could end up owing money at the end of the year. 

3. You had a major life change

Life changes – like starting a new job, getting married, or having kids – can also affect your tax filing and whether you owe money to the IRS. For example, getting a better-paying job can mean you’re no longer eligible for certain tax credits. This may result in you owing more in taxes. Or, you might be phased out of claiming certain deductions based on your income or filing status. 

 

How Much Do I Owe the IRS?

Again, your Form 1040 can tell you exactly what you owe. But that may not be the only money you end up having to pay. 

The IRS can tack on penalties and interest if you fail to file your tax return on time or if you don’t pay the full amount owed by the filing deadline. For the 2019 tax year, the filing deadline has been extended to July 15 instead of April 15. This means you have more time to prepare for paying taxes (if you owe money).  

If you don’t file on time or pay on time, you could have these penalties added on:

  • Failure to pay penalty: If you don’t pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. 
  • Failure to file penalty: The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late.

The IRS can also charge interest on unpaid balances owed. The interest accrues continuously until your balance is paid off, similar to the way it does on a credit card. 

If you need more time to pay, you can request a tax extension using Form 8868. And if you’ve lost your job or been affected by the coronavirus pandemic, the IRS is offering some tax relief to help. You can learn more here. 

 

How to Pay the IRS When You Owe Taxes

The best solution for how to pay the IRS may be to use funds from your savings account. This way, you can pay on time and you don’t have to create any additional debt to cover what you owe. The IRS offers the Direct Pay option to make paying from your bank account as easy as possible. 

But, if your savings account is looking a little thin, there are other options for paying taxes. 

 

1. Take out a personal loan

A personal loan allows you to borrow a lump sum of money that you can use to pay the IRS. If you have good credit, you can possibly score a loan with a low interest rate. 

The advantage of using a loan to pay the IRS is that you owe the lender, not the federal government. So, you’re only paying interest on the loan, rather than interest or penalties charged by the IRS.

It’s important to consider the interest rate and fees, however. If you don’t have great credit, getting stuck with a higher APR can make a personal loan an expensive option for how to pay the IRS. 

 

2. Use a credit card

The IRS accepts credit card payments for outstanding tax bills. Using a credit card to pay taxes is convenient and you might even earn some rewards for making the payment. 

But there are some downsides. For example, you may rack up interest and have to pay a fee to the IRS for credit card payments. The fee hovers around 2% of the transaction amount, depending on which card processor you use. So, if you’re charging a $5,000 tax payment to your card, it can cost you around $100. 

 

3. Set up an IRS payment plan

If you don’t want to use a loan or credit card to pay the IRS and borrowing money from friends and family isn’t an option, there’s one other thing you can try. 

The IRS offers payment plans for people who owe taxes. Setting up a payment plan means paying an initial processing fee.

It’s also important to note that penalties and interest still accrue until your balance is paid off. 

 

Planning Early Can Help Avoid Tax Headaches

If you think you’ll owe taxes, try to put a financial plan in place sooner rather than later. 

You can also take steps to avoid the same tax headache next year by checking your withholding at work and paying estimated tax payments for any side gigs. Lastly, understand the deductions and credits you’re eligible for. The more you can reduce your tax liability, the more money you can save toward your financial goals. 

 

How Long Does it Take to Get a Tax Refund?

By Rachel Slifka
February 25, 2020

Waiting for your tax refund to hit your bank account is no fun. In fact, you may be wondering whether there’s a faster way to get your money.

The answer is: yes. There is a faster way to get your tax refund and there are actual steps you can take to speed up the whole process. To help you get your money in the bank, take a look at how the tax refund process works. From here, you can take the necessary steps to receive your tax refund faster.

How long do tax refunds usually take?

The answer to this question is: It depends.

If you e-filed your return, you can expect to receive a faster refund through direct deposit. The IRS states that it can pay out most tax refunds within 21 calendar days after submission. Yet, nine out of 10 people who e-file receive their tax refunds in three weeks or less.

If you prefer to file an old-school paper tax return, you can expect a longer processing period. The IRS states it takes about six to eight weeks to process a refund once it receives your tax return. So, if you want to get your refund faster, e-file with direct deposit. You may want to consider filing online through websites like TurboTax, TaxAct, and E-file.

Once you’ve e-filed your taxes, you will need to set up how you will receive your payment. And, if you want to make sure you get your refund as fast as possible, set up direct deposit (eight out of 10 tax refunds are received via direct deposit).

If you’re a Chime member, all you have to do is choose “direct deposit” on your tax return software. You then can input your Chime Spending Account number and corresponding routing number.

From there, you just have to wait for your refund to show up in your bank account. Once your refund hits your account, Chime will send you a text alert and email. This way you will know that the money is there the second you receive it.

3 Tips for getting your refund check or deposit faster in 2020

While there isn’t any way to guarantee exactly when your tax refund will arrive, there are a couple of ways to get it even faster.

  1. File your completed tax return right away if possible (the deadline is April 15, 2020.) If you are missing W-2 forms (or 1099 forms if you are an independent contractor), then the process can take longer. So, at the beginning of January in any given tax year, be on the lookout for any forms you expect to receive. If you do not receive them by January 31, reach out to your employer or client and ask them to send these forms to you.
  2. Be prepared. Make sure you have the rest of your vital tax documents available and prepared in the event you need them
  3. Ask for help. Consider filing your taxes with a tax professional. While going to a professional won’t guarantee a faster tax refund, an expert is versed in the ins and outs of filing taxes and can advise you on making the best decisions for your particular situation.

 

What to do if you still haven’t received your refund

If you still haven’t received your tax refund after three weeks’ time, there may be a few reasons why.

First, your tax return may have included errors, such as misspelled names, incorrect social security numbers, unsigned forms and more. To avoid errors, make sure to carefully review your tax return before you click submit. Another reason for a potential hold-up: Perhaps you were a victim of identity fraud. In this situation, the IRS may hold onto your return until it can work with you to rectify the situation.

If you still feel like things are moving slowly, here are three additional steps you can take to speed up your tax refund process:

  1. Use the IRS’ “Where’s My Refund?” online tool. It’s a quick and easy way to check the status of your tax refund. All you have to do is login to the IRS’ secure website. To access the system, you will need to input your tax filing status, your social security number and the amount you declared on your tax refund.
  2. Call the IRS to check on the status of your refund. To call the IRS, you can dial the hotline at 800-829-1964. Again, you will need to be prepared and provide your social security number, tax filing status and the amount of the refund you are expecting.
  3. Use the free IRS app, called IRS2Go. Similar to the online platform, you’ll need to enter the required information into the mobile tool. It’s never been easier to check your tax status while on the go.

Be smart with your refund

Before you receive your tax refund, be sure to create a plan for spending or saving your newfound cash.

While spending it on a vacation or new clothes sounds appealing, it may be wiser to save your tax refund for future use. To get the most bang for your buck, consider opening a savings account through Chime. This way you can continue to grow your money faster! 

 


 

How to Read Your W-2 When Filing Taxes for the First Time

By Rebecca Lake
January 28, 2020

Starting a first job means you may be opening a bank account for the first time. It also means learning how to budget your paychecks. And of course, you also have to file your taxes. 

One of the forms you’ll need to file your taxes is your W-2. Employers mail these forms out at the beginning of the year. 

If you’re waiting on yours to hit your mailbox or you’ve already received your W-2, here’s what you need to know about how to decode it. 

What Is a W-2 Anyway?

In a nutshell, your W-2 is a statement of wages earned and tax withheld. 

“It’s essentially a standardized form that states what you’ve made this year from your employer and the amounts of federal income tax, social security tax and Medicare tax that were withheld from your wages,” says Dane Janas, an IRS-licensed enrolled agent, and the owner and CEO of Boundless Tax.

Aside from that, your W-2 also includes information about state and local taxes that were withheld from your wages, as well as amounts you paid for health insurance premiums, retirement plans and other benefits offered by your employer. 

The IRS requires employers to provide copies of W-2s to employees by January 31st of each year. Employers have to send paper copies in the mail, though some may also offer a digital copy to employees. 

How to Read Your W-2 to File Taxes

The IRS has a standard form for issuing W-2s. This form has a series of lettered and numbered boxes where your relevant tax information is entered. That includes:

  • Your social security number
  • Your first and last name
  • Your address
  • Your employer’s federal and state identification numbers, name and address
  • Wages earned for the year
  • Federal income tax withheld
  • Social security and Medicare wages
  • Social security and Medicare taxes withheld
  • Dependent care benefits
  • State wages earned
  • State taxes withheld
  • Local wages and income tax withheld

Here’s what a sample W-2 looks like:

Example Of Form W 2 For Taxes

When reading your W-2 to file taxes, the first thing you should do is make sure all the information is correct. 

Janas says the easiest way to do this is to compare your W-2 to your last paystub of the previous year. 

“The year-to-date amounts on your paystub should be very similar to, if not the same as, the amounts reported on your W-2,” he says. 

There’s a good reason to make sure your wages and withholdings are accurate. 

When you file your taxes, these numbers – along with your filing status and deductions – are used to determine how much tax you still owe for the year or whether you’ll get a tax refund. If your W-2 is showing that you make more money than you actually did or the withholding amount isn’t correct, this could mean a surprise tax bill. 

You also need to make sure the name and social security number listed on your W-2 are correct. The personal information on your W-2 should be the same as what you enter on your tax return. 

Once you begin filing your taxes, you’ll simply plug in the information from each box on your W-2 into your return. If you’re using an online tax filing software, this can be fairly easy to do. In fact, some tax prep software programs allow you to import your information from your W-2 automatically.

What If There’s an Error on Your W-2?

Finding a mistake on your W-2 could delay your tax filing but don’t panic. You just have to get a corrected W-2 from your employer. 

“If you think there’s an error on your W-2, first go to your employer’s payroll department,” Janas says. 

“If it truly is an error, like a miscalculation or an incorrectly-entered social security number, they will issue a corrected W-2.” 

This ensures that the social security administration and the IRS also have the correct tax information on record for you. Filing your return with an incorrect W-2 could result in headaches later on if the IRS catches the error. You might end up owing more in taxes. Worse yet, you may be subject to an audit, which isn’t something you want to deal with as a first-time filer. 

Getting W-2 errors corrected isn’t something you want to drag your feet on, says Andrew Chen, founder of personal finance website Hack Your Wealth.

“Don’t wait until the tax filing deadline to do this. Otherwise, you may have to file an extension or if you’ve already submitted your tax return, you may have to file an amendment, which is a pain,” says Chen.

When a W-2 Doesn’t Show Up

Employers are required to send out W-2s at the end of January, but things don’t always go like clockwork. 

For example, your W-2 could get lost in the mail. Or, your employer may be behind on getting forms out. 

Chen says that if you haven’t received your W-2 by mid-February, it’s a good idea to reach out to your company’s finance or accounting department to request it. This can help you get the ball rolling on filing your taxes. 

If it doesn’t show up, you can still file your taxes but this can be time-consuming, since it usually involves sifting through your pay stubs to find the correct income and withholding information to plug in, according to Chen.

Just make sure you file your taxes, no matter what. 

“The downside to not filing if you don’t receive your W-2 is a failure-to-file penalty from the IRS,” Janas says. 

“Trust me, this is a huge downside.”

The failure-to-file penalty kicks in when you don’t file your return by the April tax filing deadline. This penalty is 5% for each month your return is delayed. And if you owe taxes, you’ll be charged a separate failure-to-pay penalty, not to mention interest on what you owe. 

Bottom line? File your tax return on time. 

Are You Ready to File Your Taxes for the First Time?

Filing taxes can be a little intimidating when you’ve never done it before.

Whether you choose to DIY your tax filing with a software program or get help from a tax pro, make sure you’ve got your documents together. 

This includes your W-2s, any 1099s you might receive from side hustle income, and receipts for expenses you plan to deduct. And, if you’re getting a tax refund, plan ahead for how you’ll use it. 

Here’s a final pro tip: If you get a tax refund, use it wisely. This extra cash boost can be a great way to pay down debt or boost your savings account

 

5 tax filing mistakes you should avoid

By Rebecca Lake
January 24, 2020

Filing your tax return may not be high on your list of fun ways to spend a weekend. But filing taxes is one of those chores you can’t put off, especially if you want to avoid landing in hot water with the IRS. 

To better prepare for tax season, you can minimize your stress by avoiding these 5 common filing mistakes. To learn more, read on. 

1. Missing out on tax credits

When filing taxes, it pays to take advantage of tax breaks. 

Tax credits, for example, can help reduce what you owe in taxes for the year on a dollar for dollar basis. 

A tax credit is just what it sounds like: a credit against the amount of tax owed. That’s different from a tax deduction. Deductions are amounts you can subtract from your taxable income for the year. 

Some of the most valuable tax credits include:

  • Earned Income Tax Credit. This credit is available to low-income earners who have qualifying dependents and those who meet the guidelines for claiming the credit without qualifying dependents
  • Child and Dependent Care Credit. Taxpayers with eligible dependents may be able to use this credit to offset out-of-pocket costs for childcare.
  • Savers Tax Credit. This tax credit is designed for lower to middle-income earners who make contributions to a qualified retirement plan. 
  • American Opportunity Tax Credit and Lifetime Learning Credit. You can claim these credits if you paid eligible higher education expenses.
  • Child Tax Credit. This is a credit available to taxpayers with dependent children.

Each tax credit has its own eligibility rules. They also differ when it comes to how much each credit is worth. 

How to avoid this mistake

You can avoid missing credits by researching which ones you’re eligible for. 

For example, if you have kids, you might be able to claim:

  • Earned Income Tax Credit
  • Child Tax Credit
  • Child and Dependent Care Credit

If you’re a student or the parent of a student, you might be able to claim the American Opportunity Tax Credit or the Lifetime Learning Credit. Young adults who are just starting their careers may be eligible for the Savers Tax Credit.

The IRS offers a breakdown of eligibility guidelines for each credit but that can get confusing if you’re not a tax pro. Another way to find out what you’re eligible for is to use tax prep software to prepare your tax return. Online tax preparation companies can review your information and tell you which credits you might be missing out on. 

2. Filing under the wrong status

Filing the correct tax status matters because it determines what you’re eligible for when it comes to claiming tax credits and/or deductions. It also helps you determine how much tax you owe. 

How to avoid this mistake

The best way to avoid this is make sure you file the correct tax status. For example, you don’t want to file single when you’re eligible to file as head of household. These kinds of mistakes can add up to lost opportunities for getting a bigger tax refund. 

Remember, there are five filing statuses you can choose from:

  • Single. This status is for unmarried taxpayers who don’t qualify for another filing status. 
  • Married filing jointly. Married couples who want to pool their income, tax credits and deductions may choose this status. 
  • Married filing separately. This status can be used by married couples who would prefer to pay income tax independently of one another.
  • Head of household. Being head of household means you’re single or married but separated and maintain a home for yourself and at least one qualifying dependent. 
  • Qualifying widow(er) with a qualifying child. This status allows you to maintain the tax benefits of married filing jointly status for two years after your spouse’s death. 

If you’re not sure which status you choose, the IRS offers a helpful tool to decide. 

3. Neglecting to organize your paperwork

When you’re trying to get your tax return together and hit the tax filing deadline on time, organization is your best friend. If you’re missing key documents, such as W-2s or 1099s, or you don’t have receipts for deductible expenses, you run the risk of filing late or missing out on a tax break that can reduce your tax liability. 

How to avoid this mistake

If you want to be organized for tax season, it’s good to get an early start. There are a few ways to get organized, including:

  • Using an expense tracking app to track deductible expenses, including charitable donations
  • Choosing to file your taxes online and using the import feature to add your W-2s or 1099s
  • Creating a filing system for paper receipts, with receipts organized by month and/or expense category
  • Maintaining a checklist of documents you’ll need to file your income tax return

You can also track expenses using your bank account. If you primarily spend from your checking account, for example, you can review your electronic or paper statements for the year to see where your money went. 

4. Providing the wrong information

Waiting until the last day to file taxes or trying to rush through it can backfire in a big way. If you’re not careful and include incorrect information on your tax return, your tax filing can become a major headache.

For example, entering a wrong digit on your social security number can trigger a red flag with the IRS. Likewise, putting a digit in the wrong place when entering your income or deductions can throw off the calculations for how much tax is owed. 

Banking mistakes can also happen. Say you’re planning to file taxes online and get your refund delivered to your bank account via direct deposit. Accidentally typing in a wrong digit for your account number can send your refund to someone else. In that case, the IRS won’t get your money back for you; you’ll have to try to recover your misplaced refund. 

You can also make a mistake when entering payment details if you’re paying your taxes online. In this case, the payment may be rejected – meaning you’ll have to schedule it again. For this error, you may be charged a returned payment fee by the IRS. 

How to avoid this mistake

A simple way to avoid errors when preparing your tax return is to know what to look out for. Here’s a quick checklist of things to double-check before submitting your return:

  • Name and address
  • Social security number
  • Employer’s federal and state identification number
  • Bank account deposit number and routing number

You should also review any numeric entries you make for income, tax credits or deductions. Going over your return carefully can help you avoid issues when paying taxes. This way you can look forward to an expected refund without added stress. 

5. Waiting until the last day to file taxes

Waiting until the last day to file taxes isn’t ideal; you’re better off being the early bird. There are several reasons why you should carefully observe the tax filing deadline (in most years, April 15th).

Perhaps most importantly, filing late can trigger a failure-to-file penalty, along with a failure-to-pay penalty if you owe taxes. Aside from that, dragging your feet on filing your tax return can make you more susceptible to tax fraud. Filing early, on the other hand, means fraudsters have less opportunity to file a phony return using your personal information. 

How to avoid this mistake

Getting your tax return in on time and avoiding negative consequences all goes back to being organized and understanding what’s expected of you when it comes to paying income tax. You might have questions like ‘Do I have to file taxes’? or ‘What happens if you file taxes late’? Those are questions you don’t want to try to answer at the last minute. 

So, get organized now. For starters, check with your employer to learn when you can expect your W-2 and start working on organizing your receipts.

From there, you can set a personal deadline for filing your tax return, ahead of the April deadline. The more prepared you are, the smoother your tax filing should go. 

 

How to Read Your Paycheck: A Guide to Deductions, Withholdings & Gross Pay vs. Net Pay

By Melanie Lockert
September 5, 2019

If there’s one thing we can all agree on, it’s this: Everyone loves pay day. 

Yet, even if that initial boost to your bank account feels awesome (you can even get paid up to two days early if you’re a Chime member), have you ever taken a look at what you’re actually paid vs. what’s taken out of your paycheck in deductions? Have you considered how these payroll deductions affect your money situation? 

Read on to learn how to read your paycheck. 

Gross Pay vs. Net Pay  

Let’s dive into some terms you might see. For starters, what is gross pay and net pay? 

Your gross pay is what you get paid before all of the deductions are taken out. You can consider your annual salary your gross pay. So, if you were offered a job with a $65,000 salary, that’s your gross pay. 

But that’s not what you take home at the end of the day. After all, there are taxes and other deductions that take a bite out of your paycheck. And here is where we arrive at your net pay.

Net pay refers to the amount you get paid after all the deductions are taken out. So, net pay is the actual number that gets deposited into your bank account

It’s important to know the difference between gross and net pay as this can affect how you spend and save money. For example, you might be spending based on your gross pay but it’s probably a better idea to base your budget and spending on your net pay, which is what you’re actually taking home. 

Tax Withholdings: How Gross Pay Becomes Net Pay

Do you remember when you first got hired and had to fill out a W-4 form and choose your tax withholding? 

It may be confusing, but what goes on that W-4 form determines how much gets taken out of your paycheck for taxes

Some typical deductions on your paycheck include:

  • Federal tax
  • State and local tax
  • Social Security and Medicare tax 

Let’s take a deeper look. 

  • Federal Income Tax  

If you’re an employee in the United States, you’re required to pay federal income tax. Federal income tax is a pay-as-you-go arrangement, so a portion is taken out with each paycheck. The amount deducted depends on your tax bracket as well the tax withholding you elected on your tax form. 

There are seven different federal income tax rates:

Tax Brackets and Rates 2019 by Tax Foundation
       Source: Tax Foundation

As you can see, how much you earn and whether you’re single or married will affect the amount of taxes deducted.

  • State Income Tax

It’s not just the federal government that wants a slice of your paycheck. Your state also has a state income tax that is taken out of your paycheck. 

Some states have a flat tax rate that doesn’t change regardless of your income. Other states, like Washington and Texas, have no state income tax at all. Still, other states have a graduated tax rate which is similar to the federal tax bracket breakdown. 

  • Federal Insurance Contributions Act (FICA): Social Security Tax & Medicare Tax

When you look at your paycheck you might see FICA and wonder what that acronym is. 

FICA stands for Federal Insurance Contributions Act, which includes social security tax and medicare tax. Employers are required by law to take out these deductions. 

The Social Security tax is something that you pay into and can use upon retirement. It’s also available if you become disabled. The Social Security tax rate is 12.4 percent and your employer pays half and you pay half, so your contribution is 6.2 percent. 

Medicare provides healthcare after age 65 or if you have a disability. The Medicare Tax rate is 2.9 percent and you and your employer each pay half, so your contribution is 1.45 percent. 

Employee Benefits Deductions 

We’ve covered the mandatory deductions that are taken out of your paycheck, but there may be other deductions that you opt into as well. For example, if you take advantage of your employer-sponsored retirement plan, you may see your 401(k) contributions deducted as well. 

Here are some common employee deductions. 

  • Health Insurance

Your employer may offer health insurance and you may have some of these deductions taken out of your paycheck to pay for your health coverage. For example, you might have separate line items for medical, vision and dental.  

  • 401(K) Retirement Savings 

In a nutshell, a 401(k) is an employer-sponsored retirement plan that is only available through your workplace. This can make it easier for you to save for retirement. Your 401(k) contributions are also tax deductible, which can lower your tax liability and save you money on taxes. 

  • Flex Spending & Health Savings Accounts 

At your job, you might be eligible for flex spending and health savings accounts. 

  1. A Flexible Spending Account (FSA) allows you to make tax-free contributions for out-of-pocket health costs. Your employer may contribute to the FSA but it is not obligated to do so. You typically must use your FSA funds within that same year. 
  2. A Health Savings Account (HSA), on the other hand, lets you save money on a pre-tax basis to pay for certain medical expenses like deductibles, co-payments, and more. The one caveat here is that you must have a High Deductible Health Plan (HDHP) to be eligible for an HSA. 

This is How Chime Gets You Paid Early

Why it’s Important to Understand Your Income Taxes & Employee Benefit Deductions 

Let’s face it: When payday comes, you’re probably excited for the cash. But it’s important to understand your income taxes and deductions. 

Having an understanding of how your paycheck works also makes you more financially literate and empowered. This will help you track your income more accurately, which will help you budget and save. Also, if something looks awry on your paycheck – because mistakes can happen – you can fix it. This way nothing will come between you and your money. 

Hourly Employees & Overtime Hours 

If you’re an hourly employee, it’s important to track your hours and make sure you’re getting paid for all the time you’ve worked. If you are eligible for overtime, make sure you know the policy and track those hours, too. 

Pay Stub Glossary: 13 Common Terms to Understand When Reading Your Paycheck 

There are several common terms that you might see on your pay stub. Below are some of these terms, along with their definitions. Take a look:  

1. Pay Period 

A pay period refers to the amount of time between one payroll run and the next. So, if you have a pay period from the 1st to the 15th of the month, you should be paid for all hours worked during that time. 

2. Withholding 

Withholding or withholding tax refers to money that is withheld from your check to be paid to the government. 

3. Deduction 

A deduction is an amount of money that is subtracted from your gross income, which can lower your tax liability. In other words, a deduction can lower the amount you pay in taxes. 

4. Bi-monthly paychecks 

Bi-monthly paychecks refer to getting paid twice a month, typically on the 15th and the last day of the month. 

5. Bi-weekly paychecks 

Bi-weekly paychecks refer to getting paid every other week.

6. Hourly Pay

Hourly pay refers to the amount of money you are paid for each hour worked. 

7. Salaried Pay 

Salaried pay refers to the total amount of money you’ll make for your work. If you have salaried pay, you typically get paid the same amount regardless of how much you work. 

8. YTD

YTD refers to Year to Date, which shows you how much you’ve earned at the start of the calendar year until the current date. 

9. Progressive Tax Rate 

A progressive tax rate refers to tax rates that go up gradually based on income. So, low income earners pay a lower tax rate compared to those who earn higher incomes. 

10. FT

FT refers to Federal Tax, or the taxes that the federal government take out of your paycheck. 

11. ST

ST refers to state tax, which refers to the taxes that your state takes out of your paycheck. State tax rates vary by state and not all states have state income tax. 

12. SS

SS refers to Social Security, which is a tax that goes toward retirement benefits for your future. 

13. MTW

MTW refers to Medicare Tax Withholding and is a tax that is taken out to provide insurance in your elderly years. 

Be your own financial advocate 

Now that you know the terminology and how to read your paycheck, you can take steps to manage your money and be your own financial advocate. Isn’t it about time you make sure you’re getting paid the right amount? 

 

Where Do Our Taxes Go? A Breakdown With the Help of Cardi B

By Jackie Lam
February 27, 2019

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As the saying goes, nothing in life is certain except for death and taxes. And every year when you file your tax returns, you may be scratching your head, thinking “Where the heck does the money go?”

Cardi B wants to know, too. Last year the superstar rapper, on an Instagram video that went viral, asked, “So you know the government is taking 40% of my taxes. And Uncle Sam, I want to know what you’re doing with my… tax money.”

This is a great question, and the answer: It’s complicated. To keep things simple, here are some figures from an article at The Hill: The federal government spent $33,054 per household and collected $26,198 in taxes. What’s the budget deficit? We’re talking $6,856 per household.

Based on this $33,054 household amount, here’s where the money went:

Social Security/Medicare: $12,401. This comes out of your paycheck, and the 15.3 percent for Social Security and Medicare is divided evenly between you and your employer. Note: If you’re self-employed, you’re responsible for the entire 15.3 percent.

Anti-Poverty Programs: $6,112. This comprises assistance programs to help the less fortunate, like aid for low-income families. Some of these programs include Medicaid, Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, child care subsidies, Supplemental Security Income (SSI) and low-income tax credits.

Defense: $5,046. This is everything from military paychecks, operations in the Middle East, and the R&D and acquisition of new technologies and equipment.

Interest on the National Debt: $2,434. Just like how you pay interest fees on credit cards, mortgages and car loans, our government pays interest on the national deficit.

Veteran’s Benefits: $1,390. This includes income and health benefits provided to our veterans. 

Federal Employee Retirement Benefits: $1,098. This goes toward retirement benefits for federal employees.

Justice Administration: $546.  This is earmarked toward law-enforcement grant programs, and paying for federal attorneys and prisons.

Education: $536. While the majority of education spending comes from a city and state level, nine percent of K-12 education spending comes from the federal government. Where does the money go exactly? The lion’s share goes to low-income school districts, college student financial aid, and special education.

Health Research and Regulation: $533. This goes toward dozens of grant programs for health providers, as well as the National Institute of Health (NIH), Centers for Disease Control (CDC), and the Food and Drug Administration (FDA).

Highways and Mass Transit: $487. This is funded primarily by the 18.4 cent per gallon tax you pay on gas.

International Affairs: $371. This includes contributions to the UN, operation of American embassies abroad, and economic and military assistance to other countries.

Disaster Relief: $338. This amount provided assistance and relief to hurricanes and natural disasters.

Miscellaneous: $1,761. If you’ve been crunching the numbers, you might have noticed that there’s $1,761 still left to be spent. This remainder is distributed to federal programs that aren’t listed, such as unemployment benefits, social services, natural resources, farm subsidies, and space exploration.

Tax Filing Tips

Now that you have a basic idea of where the money paid from your federal taxes goes, how can you best prepare to file your tax return in 2019? Take a look at some of these tips:

Get Started Early. With all the changes from the Tax Cuts and Jobs Act and this historic, epic government shutdown, filing a return for the 2019 tax year might be a tad more complicated than in previous years. So, it’s important to get a jump on tax prepping as soon as you can.

If you’re going the DIY route, and using software to file on your own, gather all the required documents to file your taxes – starting with your wage and income statements (i.e. W-2s and 1099s). Have your receipts or credit card statements handy in case you need to include deductions. You can even try tracking some of your spending using a money management app.

If you’re working with a tax pro, ask her what documents you’ll need to gather to get the process rolling.

You can file your return as soon as it’s ready and this way you’ll get a refund sooner. And just think: This might be a nice boost to your savings as the average tax refund is $2,895 (this can vary by state.)

Consider Whether You Need an Extension. Need more time to file? You can ask for an extension. It gives you six more months to file, and pushes the deadline from April 15th to October 15th. Remember: Receiving an extension means you have more time to file, but payment for any taxes owed are still due by April 15th.

The More You Know

So there you have it. Both you and Cardi B now have a clear idea as to where those government tax dollars are going. It’s now your turn to file your tax return!

 

How to File Your Taxes Online 2020

By Robyn Parets
January 20, 2019

It’s a new year. Time to get in shape, eat healthy, start a new side hustle, and…..prepare your taxes. Really? Really.

While the deadline to file 2019 taxes isn’t until April 15, now is a great time to get organized. This way, you won’t be the one stressed out and scrambling to get your taxes filed online by 11:59 pm on April 15.

Are you ready to organize your taxes and get your finances in shape? Take a look at our handy-dandy guide to filing taxes online and start the new year with a sense of accomplishment.

Figure out what income forms you’ll need

Most people will be dealing with either W-2 forms, W-9 forms or both. And, yes, the Ws can be confusing. Here’s a bit more information about these forms so you can determine which ones pertain to you.

  • If you are employed, you will get a W-2 form sometime in January. This form states the amount of money you earned in 2019, as well as how much you paid in federal and state taxes and other payroll deductions, including the amount you contributed to an employer-sponsored retirement plan. This is the main income form you’ll need when filing your tax return.
  • If you have a side hustle or started a business in 2019, you’ve likely provided your clients with W-9 forms. If you earn more than $600 with a particular client (who should have your W-9 on file), that client would then fill out a 1099-MISC form indicating how much you were paid for the year. A copy of this form will be sent to both you and the IRS. You will then report this income when you file your taxes online.

Figure out if what forms you’ll need to fill out

Form 1040

If you have a 9 to 5 job and will be receiving a W-2 this month, you may be able to take the standard deduction. For 2019, the standard deduction for individuals is $12,200 and $24,000 for married people filing jointly. If you use this standard deduction, you can’t also itemize deductions. Instead, you’ll take the standard deduction and fill out the new Form 1040 (prior to tax year 2018, there were two other options for shorter forms: Form 1040EZ and Form 1040A).

Form 1040 with schedules

If you’ve had a life change (got married, got divorced, had a child, started a business etc.), this may bump you into a different financial situation where you’ll need to take itemized deductions versus the standard deduction. If this is the case, you may need to fill out the new Form 1040, in addition to one or more of the new schedules. For example, if you have capital gains, unemployment compensation, gambling winnings, or any deductions to claim (including student loan interest deduction, self-employment tax, or educator expenses), you may want to fill out Schedule 1. To learn more about the new Form 1040 and the six schedules, check out this Q&A from the IRS.

If you will be filing schedules for 2019, then it’s important for you to prepare and organize your itemized deductions in advance. This will help you when it comes time to file your taxes online. If you’re a freelancer, you’ll definitely want to organize your deductible expenses. This can save you big bucks by lowering the amount you owe or perhaps even netting you a tax refund. Here are some of the more common itemized deductions:

  • Home mortgage interest
  • Charitable contributions
  • Medical expenses
  • Self-employment expenses
  • Home office and other associated deductions
  • Educator expenses

Figure out how you’ll file online

According to the IRS, nearly 90 percent of taxpayers now use tax software and the agency expects that the new Form 1040 and schedules will make online filing even easier. You can prepare and e-file for free using IRS Free File.

Alternatively, you can spend some money and use one of the more popular DIY tax software tools, like Intuit’s TurboTax.

If you want professional help, you can go with an authorized e-file provider in your area. To find a local tax preparer, you can do a search here with your zip code or state.

File early. Get your refund early.

If you think you may be getting a tax refund for 2019, this is more of an incentive to prepare your taxes and e-file early. The sooner you file, the sooner you’ll get your refund and you know what this means – more money in the bank. And, if you want your cash as fast as possible, make sure you use direct deposit. In fact, eight out of 10 taxpayers get their refund via direct deposit through the IRS.

Pro tip: Chime makes it simple for you to get your money early. Here’s how to get your tax refund faster with direct deposit:

  • Open a Chime bank account
  • Select “direct deposit” on your tax return software and include your Chime Spending Account and routing numbers. Make sure all information is accurate.
  • Sit back, relax and wait for your refund to appear in your bank account. According to the IRS, nine out of 10 direct deposit refunds are issued within 21 days (it typically takes eight weeks via snail mail). Better yet, you’ll get a text alert and email from Chime the second your refund hits your account.

Final word

We know that taxes are no fun. But, before the very thought of organizing your taxes causes you to break out in a sweat, take a look at the guide and resources here. (Pro tip: if you need more expert help, it’s advisable to seek out an accountant or tax professional).

Before you know it, you’ll be ready to file your taxes and set your sights on other financial goals this year.

 

The Fastest Way to Get Your Tax Refund Check

By Matthew Banbury
January 8, 2019

It’s officially January, which signals the beginning of everyone’s favorite part of the year: tax season, or as we like to think of it, refund season!

Tax season can be stressful, but did you know that nearly 80% of people who file a return will receive a tax refund check? Yes. You read that correctly. Uncle Sam has refunded an average of $3,120 over the past few years. If you’re eagerly awaiting that big payday like most Americans, you’ll want to receive your reimbursement ASAP. Below we’ve outlined the fastest way to deposit your tax refund check with Chime.

Why wait for a tax refund check in the mail, when you can have it automatically deposited directly into your Chime Account?

One of the best ways to ensure that you receive your refund check quickly is by electing to e-file with direct deposit. According to the IRS it’s “the fastest way to get your tax refund check.” Filing with direct deposit is convenient and easy. Here’s a quick step-by-step guide to getting your tax refund direct deposited to your Chime Spending Account:

Step 1: Get your Spending Account and Routing Numbers. 

First things first. Get your bank account information:

  • Open the Chime app on your phone or login to your Chime Account on the web.
  • Visit the ‘Direct Deposit’ section under ‘Move Money’ to view your Spending Account and routing numbers.
  • If you need a copy of your account information, you can also email, print, or download your direct deposit form. The form which has your account information needed for direct depositing your refund.

Step 2: Include your Spending Account information when you file your return.

If you’re using a tax software, like TurboTax or Quickbooks, you’ll be presented with options as to how you would like to receive your tax refund check: direct deposit or check by mail. Select direct deposit and make sure to include your Spending Account and routing numbers. If you are having your taxes filed by a professional, let your tax preparer or accountant know that you want to receive your tax refund check via direct deposit and provide them with your account information.

Be sure to double, triple, and quadruple check the information provided to avoid any errors which could delay your refund.

Step 3: Get notified the instant your refund arrives.

When you e-file your return and select direct deposit as your payment option, expect to receive your refund within 21 days. The IRS issues 9 out of 10 direct deposit refunds within 21 days, as opposed to waiting 8 weeks for a check via snail mail. The moment your refund is deposited to your Spending Account, we’ll send you an email and an alert to your phone. If you think it’s taking too long to get your refund, you can always check on your refund status with the IRS’s nifty refund tracker.

The deadline for filing your return is April 15th, but the sooner you file, the sooner you’ll get your refund. Following these tips will ensure you follow the IRS’s recommendation on the fastest way to deposit your tax refund check and be the envy of all your friends.

 

7 Tips to Help You File Your Taxes for the First Time

By Kim Studdard
February 15, 2018

Taxes are a necessary evil.

You may not want to file taxes, but you’ve got to do it. You may be wondering, “Is it mandatory to file my income tax returns?” Take it from us, it is. 

Nonetheless, filing taxes can be stressful, especially if this is your first time filing your taxes. Here are 7 tips to help you file your taxes. 

1. Gather your tax forms

If you are an employee, you’ll need your W-2. If you’re an independent contractor, you’ll need your 1099 forms. Also, gather other pertinent information like your health insurance paperwork, tuition statements (if you’re in college), mortgage and bank statements, and any other tax-related documents.

Lastly, if you want to itemize business expenses, make sure you have this information on hand as well. This includes receipts and even statements that show you’ve collected payments for renting out part of your home. This way, you’ll be ready to file your taxes.

 2. Know what tax deductions you qualify for

Did you pay interest on any student loans last year? Did you have a baby? Did you move out of state for a job?

Regardless of how your life changes, it’s important to know which tax breaks may be available to you. Now is the time to do your research and learn about the different tax credits and deductions that you may be eligible for when filing your taxes.

3. Don’t wait until the last day to file taxes

The official deadline for filing taxes is April 15th every year, unless the 15th falls on a weekend or holiday. This may or may not be extended, like in 2018 when people were given two extra days to file.

Even if you have to mark this date on multiple calendars, don’t forget it! Why? If you file your taxes late, you may incur penalties for not filing on time. Additionally, if you owe the IRS money, you’ll want plenty of time to prepare.

To prepare, try to have all of your documents ready to go at least a month in advance.

4. File an extension with the IRS

Need more time? If so, you may need to file an extension and the deadline to do this is the same date taxes are due – April 15. The IRS allows you to file a free extension using one of their endorsed websites. These websites walk you through the steps you need to follow when filing for an extension. If you still aren’t sure what to do, it’s important to seek help from a tax professional.

5. Use an online tax software

Still scared to file your taxes? You may want to try using an online program, like TurboTax, H&R Block Online, or TaxAct Online.

Online tax programs like these offer automatic importing of your W-2 and are very easy to use. They also offer self-employment filing options for business owners who need industry-specific deductions or need to track self-employment expenses.

If you’re using a software program and need a little extra hand-holding, you can call the online company to speak to a professional. Just make sure you are aware of any possible fees involved.

6. Hire a tax advisor or accountant

If using an online software program isn’t your cup of tea, it’s a good idea to work with a tax professional. When you hire a tax advisor or accountant, this person will prepare your taxes for you and even help you find deductions to help reduce your tax bill. Better yet, a tax professional may help you get a bigger refund. While you’ll have to pay your tax preparer, you’ll likely worry less.

7. Prepare for next year’s tax season

Once you’re done filling your taxes for the first time, make sure you start preparing ahead for next year. For starters, keep your tax information from the previous year on hand for future reference and make sure that you’re claiming the right deductions on your W-4 form. You can always change this by calling your employer’s human resources department.

If you’re self-employed, remember to keep records for all of your expenses. This way, filing your 2019 taxes will be much easier. Just think: you’ve made it through your first tax return! Now you know what to expect and you’ll be able to approach next year’s taxes with a bit more peace of mind.

 

Tax Professional or DIY? Here’s How to Choose

By Gemma Hartley
February 8, 2018

The thought of filing taxes on your own can be daunting. At the same time, hiring a professional accountant comes at a price: around $273 of your potential refund.

But, with the availability of low-cost online options – like TurboTax and TaxAct – you may still be wondering if hiring a tax professional makes the most sense for you. To help decide which way to go when filing your taxes, here are a few questions you should ask yourself.

Have you experienced any life changes this year?

Major life changes can definitely be a reason to seek out the help of a professional tax preparer as these events have the potential to complicate the tax filing process. Here are a few lifestyle shifts that may prompt you to hire an accountant:

  • You had a baby. While it’s fairly easy to input the child tax credit on regular tax software, if you had a baby within the last year, you may want to seek out a professional to help you figure out possible medical deductions pertaining to your child’s birth. You may also be able to deduct childcare costs.
  • You moved. Whether you moved across the street or across the country, if your relocation involved the purchase or sale of a home, you may want to get in touch with a tax professional to make sure you’ll benefit from possible tax breaks.
  • You earned more money. If your income spiked significantly in the past year (especially if you made over $250,000), you may benefit from the help of a professional. Why? Taxes often get more complicated as your income rises, and a professional who understands the tax code can often help out.

Do I feel confident doing my own taxes?

You may be great with a budget and managing your money, but taxes are an entirely different beast. If you have a simple return with only your W-2 information to input, you may be ok filing on your own. But, if you started up a new business or have a side hustle in addition to your job, it may be worth the peace of mind to hire a professional.

Also, if you’re going through the free filing process and find that you’re second guessing yourself, it’s time to outsource your taxes. Keep in mind that working with a pro can help you find deductions you never knew existed — like the ability to deduct home office space used to run your side hustle or moving expenses incurred for a new job.

Am I ready to deal with the IRS?

If you are filing solo, even if you feel certain you did everything right, there is no guarantee that you won’t get audited by the IRS. The audit process can be time consuming, nerve-wracking, and costly. Also, if you’re the one preparing your taxes, you’re on the hook should an auditor come calling.

If a tax professional prepares your taxes, this person or firm will be required to defend your return to the IRS. Instead of you, your accountant will be the contact person required to answer questions posed by the IRS, even though you’ll ultimately be on the hook for any amount owed. For this reason alone, hiring an accountant may be worth it.

How much time do I have?

The average time it takes to complete a tax return, according to the Washington Post, is about 13 hours. If you’re already strapped for time, you may want to consider outsourcing this work. And, if you do want to prepare your taxes on your own, make sure you get organized early and set aside plenty of time to file before the April 17th deadline.

Make a decision and start planning

The earlier you plan for tax season, the better off you’ll be. Weigh the pros and cons now to help you decide whether to file alone or hire a professional. And, one final tip: make sure you sign up now for a Chime account. This way, you can get your tax refund deposited directly into your account. Better yet, you’ll get your refund in three weeks rather than waiting for two months.

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