Resources, Tools & Tips to Better Support Employees During Tax Season

employees chatting

 

Tax season is notoriously stressful for accountants -- but it’s not just them who feels added worry during that time of year. For many of your employees (regardless of industry), tax season can be overwhelming and stressful.

There are things employers can do to ease that burden for their employees and leave them prepared to make solid financial decisions for this year and beyond. Here are some priority items to share with your employees during tax season:

Reviewing Withholdings

As you prepare to distribute W-2s and other income documents, have conversations with employees to discuss key items. You can use this time to review contributions to retirement accounts and share other withholdings.

Some individuals may be withholding too little or too much, so reviewing these items with them will help better prepare for next year. You can recommend tools like the new Form W-4 or the IRS tax withholding estimator.

IRS Free File

The IRS has tools available to low- and mid-income earners that make the tax filing process quick and easy. IRS Free File is a program where tax preparation software companies provide their filing products for free for people who meet certain criteria. Free File has two components:

  • Individuals whose adjusted gross income is $72,000 or less qualify for the traditional IRS Free File, where they can prepare and file their taxes using an IRS partner site for no cost.
  • Individuals whose adjusted gross income is greater than $72,000 can access Free File Fillable Forms. These allow taxpayers to fill out and file their taxes online for free but do require knowledge of how to prepare a tax return.

Earned Income Tax Credit

Another resource for low- and mid-income earning employees is the Earned Income Tax Credit -- sometimes referred to as either EITC or EIC. It’s important to note that an individual can receive the EITC even if they do not owe tax or are not required to file, but they will need to file a tax return in order to receive the credit.

For tax year 2019, here are the income limits and maximum credit amounts for easy reference for your employees.

Income limits:

Filing Status

0 Qualifying Children

1 Qualifying Child

2 Qualifying Children

3 Qualifying Children

Single, Head of Household, or Widowed

$15,570

$41,094

$46,703

$50,162

Married Filing Jointly

$21,370

$46,884

$52,493

$55,95

 

Investment Income Limit: $3,600

Maximum Credit Amounts:

  • $6,557 with three or more qualifying children
  • $5,828 with two qualifying children
  • $3,526 with one qualifying child
  • $529 with no qualifying child

To begin planning for the following year, these are the limits and amounts for tax year 2020.

Income limits:

Filing Status

0 Qualifying Children

1 Qualifying Child

2 Qualifying Children

3 Qualifying Children

Single, Head of Household, or Widowed

$15,820

$41,756

$47,440

$50,954

Married Filing Jointly

$21,710

$47,646

$53,330

$56,844

 

Investment Income Limit: $3,650

Maximum Credit Amounts:

  • $6,660 with three or more qualifying children
  • $5,920 with no qualifying children
  • $3,584 with one qualifying child
  • $538 with no qualifying children

This tax credit can help hardworking families, yet many are unaware that they qualify.

Saver’s Credit

The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is another way for your employees to take double advantage of their retirement savings by getting a tax credit based on how much they contribute.

Individuals are eligible for the credit if they:

  • Are 18 years of age or older
  • Not claimed as a dependent on someone else’s return
  • Not a student. Student status is defined as being enrolled full-time in a school, technical program, trade program, mechanical program or an on-farm training course given by a school, state or local government for five calendar months within the tax year.

The amount received for a Saver’s Credit depends on adjusted gross income and amount contributed. See the below chart from the IRS to estimate Saver’s Credit for 2020:

Review HSAs

Employees who didn’t withhold enough from their 2019 pay to cover their tax amount may be able to avoid penalties by making additional last-minute contributions to their HSAs. Contributions can be made up until the filing date (April 15th for most taxpayers) and can be attributed to the prior tax year.

While discussing HSAs with employees, prepare them for the two tax documents related to their HSAs: the Form 1099-SA which reports all withdrawals made during the tax season and the Form 548-SA which shows the total contributions made and the market value of the account.

For many employees, tax season is stressful because they aren’t sure how to properly prepare or maximize their returns. By making providing these simple tips and resources, you can help ease that burden going into this tax season.

 

Sources:

https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/remind-workers-of-these-tax-tips.aspx

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit

https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free