The federal income tax is a pay-as-you-go system. Employers generally withhold tax from workers’ wages. Taxpayers also often have taxes withheld from certain other income including pensions, bonuses, commissions and gambling winnings.
People who do not pay tax through withholding, like the self-employed, generally pay estimated tax. In addition, those who earn income such as dividends, interest, capital gains, rent and royalties are usually required to make estimated tax payments.
Each year, because of life events like changes to household income or family size, some people get a larger refund than they expect while others find they owe more tax.
To prevent a tax-time surprise, the IRS offers these tips:
- New Job. When starting a new job, an employee must fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from regular pay, bonuses, commissions and vacation allowances. The IRS Withholding Calculator tool on IRS.gov is easy for taxpayers to use to figure how much tax to withhold to avoid surprises.
- Estimated Tax. People who have income not subject to withholding may need to pay estimated tax. Those expecting to owe $1,000 or more than taxes withheld from their wages may also need to make estimated tax payments to avoid penalties. The worksheet in Form 1040-ES, Estimated Tax for Individuals, helps to figure the tax.
- Life Events. A change in marital status, the birth of a child or the purchase of a new home can change the amount of taxes a taxpayer owes. The Managing Your Taxes After a Life Event page on IRS.gov provides resources to explain the tax impact of these changes. In most cases, an employee can submit a new Form W–4 to their employer anytime.
- Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.
Here at NFS, we offer a variety of FREE LIFE GUIDES ranging from “Managing Your Financial Life” to “Thinking About Retirement” to Marriage and Money”. All of these life events cause the need for a tax review. To request any of these FREE guides, click here
to see the full list and request your copies today.
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For college-bound freshmen and their parents, this is an exciting summer, full of anticipation. The kids are becoming adults, and are ready and eager to take responsibility for their own lives.
Amid all this excitement, it is easy for parents to forget that they are no longer the natural legal guardians of their college-age children, and so they are no longer authorized to make personal, medical or financial decisions for them. At age eighteen, your children become adults in the eyes of the law.
Consider every parent’s nightmare. You get a long-distance phone call from your child’s college saying your son or daughter has a critical illness or has been in a serious accident. Then your nightmare gets even worse. You phone the hospital, only to be told that federal law prohibits disclosure of any confidential information about your son or daughter’s medical condition, even though you are their parent.
You hop on a plane, perhaps assuming that you can take control of the situation when you arrive. Instead, the hospital still won’t talk to you, and you are told that you cannot make important personal or medical decisions for your unconscious child. Instead, you will have to go to court to begin the long and expensive process of being named your child’s guardian and conservator.
Don’t let this easily preventable tragedy happen to you. Urge your college-bound child to get three simple and inexpensive legal documents in place before he or she heads off to school this fall.
The Health Insurance Portability and Accountability Act (HIPAA), is the federal law that prohibits healthcare professionals from disclosing your adult child’s confidential medical information to you unless your child has named you (and/or other family members) as his or her HIPAA “agent”. If you are not named in a HIPAA Release, it does not matter if you are the patient’s spouse or parent, the doctors’ hands will be tied. If you get that dreaded phone call, this simple release will at least give you immediate knowledge, for better or worse, of your child’s medical status.
Even if you talk to doctors as your child’s HIPAA agent, you will not be able to make medical decisions for a child who is mentally incapacitated (e.g., in a coma) unless your child named you as their healthcare agent in a legal document called a healthcare proxy (or healthcare power of attorney).
In Massachusetts, a proxy must be witnessed by two persons, neither of whom is named as health care agent. If no healthcare proxy exists, you will have no choice but to go to court to get appointed guardian of your child.
Durable Power of Attorney
Many parents incorrectly assume they will be able to step in to manage their incapacitated child’s financial affairs, such as banking, car loans and insurance, simply because they remain the child’s principal income source. Before leaving for college, your child should execute a durable power of attorney, authorizing you – as their “attorney-in-fact” – to handle their finances in their stead. Unlike a healthcare proxy, which becomes effective only if your child becomes unable to make his or her own decisions, you can use this durable power of attorney immediately, and as a matter of convenience, to assist your child with their finances while they’re off at college. Once your child is mentally incompetent, however, the power of attorney will be more than a convenience. Without it, you’ll need to go to court to be appointed your child’s conservator.
Your son or daughter child can carry a wallet card with them, allowing doctors to gain quick phone or internet access to these crucial healthcare documents, even if your child is no condition to communicate.
In most cases, college students’ permanent legal residence does not change while they are attending college out of state, and these legal documents should be created in their state of legal residence. So before your children head off for college, they should get these three inexpensive documents in place.
You cannot do this task for them, because they are legal adults who must make their own legal decisions. But once they realize the unnecessary heartache they can spare you, they will appreciate the wisdom of taking these simple and inexpensive precautions.
If you need help in getting these documents in place, please contact our office and we will make sure to connect you with a trusted attorney who can do this for you.
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