For years, I loved tax time. That’s because my husband and I made a habit of taking out a little too much money from each paycheck throughout the year, ensuring we’d get a nice big refund every spring. Then my father – a CPA – pointed out the absurdity of giving the government a “loan” each year, and encouraged us to put that extra money we’d been giving to Uncle Sam into our 401(k) accounts instead.
And our tax refund began to shrink… substantially.
Then I quit my full-time, W2 job and started picking up freelance work instead. That move really complicated our taxes, and all but ensured that not only would we not receive a refund, but we’d most likely owe the IRS at least a little money at tax time. Last year, for example, we cut the government a check for $800.
This year, though, I am definitely dreading filing our income tax forms. Between moving last year, doing both freelance work and returning to full-time status with a new W2 job, and my husband’s new job, our finances are one gigantic, confusing mess. I was pretty sure we’d avoided a hefty tax bill, though, and had started to breathe a sigh of relief…
I learned that the HR department at my new job had made a big mistake on my withholdings.
Before we moved, we paid federal and state income tax. That was it. But after our move, our new town collected city tax on our income on top of the state and federal collections. Initially, HR set up the withholdings for this city tax, but somewhere along the line stopped collecting it; I failed to notice, largely because it coincided with a built-in raise to my paycheck. (One of the big downsides to the “digital era” is that, without a paper pay stub in hand, I fail to review my paycheck every other week – that’s my mistake, I know.)
So what does that mean for our tax situation?
My city collects 2% of our post-federal/post-state taxable income and uses it to fund the public schools. Now, my oldest attends those public schools – and I’m a product of those same schools – so I can’t and won’t complain about the extra “fee” I pay. But over the seven or so months in 2014 that I lived in our new home, it meant I owed the city more than $1,000.
I tell my story to illustrate the fact that even those of us who think we’re on top of our financial situation can make tax mistakes. Maybe they aren’t even mistakes that originated with us (in my case, it originated with HR, although my poor oversight allowed it to continue unabated), but we still end up paying the price. It’s why it’s so important that you find someone who is qualified to help you with your taxes, especially if – like my family – you’re new to the area and unfamiliar with local tax laws.
Have you ever been blindsided at tax time by a big bill you weren’t expecting? How’d you handle the situation?