Skip to main content

5 things you may not know about taxes

By WTOP Staff

Barry Glassman
WTOP Finance Contributor

WASHINGTON — If you find yourself getting a refund every year, there could be reasons you haven’t considered.

When you first started with your current job, you completed a W-9 form that told payroll what your life is like; if you are married and if you have children. Many people complete this once and never give it another look.

Yet, through the years, you married and had several children, and even took out a large (deductible) mortgage.

The payroll people don’t know this. They assume all is the same. As a result, you’re earning more and taxes are being withheld based on dated information.

In this case, take the time to talk with your HR people and adjust your tax withholding to reflect your life today.

If you’re in a group with sporadic income, such as those with big commissions or bonus checks, you may want to address your payroll deductions. For each paycheck, the payroll people estimate your annual income as if you are earning this amount every pay period.

During the lean pay periods, perhaps 10 percent federal withholding will be deducted. Yet for the bonuses, that withholding could possibly be 39.6 percent. In this case, feel free to adjust your withholding for the big paychecks to better reflect your annual tax bill.

Hint: Use TurboTax’s TaxCaster app to estimate your annual income tax: TaxCaster App.

Those who have a big tax bill due this April may have been hit by the higher rates and phaseouts that came into effect in 2013. Those taxpayers in the highest brackets will find:

  • Higher overall federal income tax brackets, now up to 39.6 percent
  • Higher federal capital gains tax rate, now up to 20 percent
  • A new 3.8 percent surtax on unearned income, such as investment interest and dividends
  • And diminishing value of deductions, as these are now phased out (up to 80 percent) as income goes higher

We are hit more with the Alternative Minimum Tax (AMT) in the greater Washington area, and there’s little we can do about it. In short, the AMT was put in place a few decades ago to catch uber-wealthy families paying little in taxes. Now, it ensnares 5.7 percent of D.C. taxpayers, 4.9 percent of Maryland taxpayers and 3.8 percent of Virginia taxpayers.

The main culprits are those items used in this “alternative” calculation: state taxes and mortgage interest. Because D.C. and Maryland have such high state taxes and have more than their fair share of jumbo mortgages, taxpayers will continue to find themselves hit by this levy.

Same-sex married couples this year need to file their federal return either filing jointly or married filing separately. This is true regardless of where you currently reside. In D.C. and Maryland, filers will file the same for State tax filing as Federal.

In Virginia, however, same sex couples who were legally married in states that allow legal marriages need to prepare a pretend Federal tax return filing as individuals; then use that information to file the Virginia return. One extra step, but that’s how the Commonwealth works.

See this helpful map for details state-by-state: Same Sex Tax Filing Map 1. If you have self-employment income outside of your day job, consider setting up a retirement plan for that additional income. I see this quite often for attorneys who also book speaking engagements or do expert witness work as a sole practitioner. Even if they are fully covered, and maximizing their firm retirement plan contributions, they may be able to set up a Simplified Employee Pension (SEP) to set aside a portion of their self-employment income. Click here for more information.

Editor’s Note: Barry Glassman, CFP

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
Read Next Story

Related News

Frustration grows in Venezuela as earthquake death toll reaches 1,430

Israel and Lebanon sign framework agreement with US in ‘first step’ toward peace, Rubio says

Trump-endorsed populist poised to become Colombia’s next president as rival challenges vote