Posted January 19, 2012
Your Income Tax
Our Congress, Ourselves
By Sandra Karas
Yes, Virginia, We Are the Congress
It bears reminding ourselves from time to time that the "they" we deride - those with whom we have become so exasperated, the government and the people in it who are seemingly not paying any attention to us - are US. They are we! It's not as though the Constitution didn't already provide us this status, it's just that we feel quite powerless at times and not very, well, represented. So, with another round of encouragement, I suggest that you contact your Congressional representatives - both in the House and Senate - and let them know what's on your mind. Do you want to change the tax structure? How? Do you want lower taxes on the income you've worked for (your wages)? Continue the lower rates on your investment income (stocks, bonds)? Both? And what do you expect in return? Is there something you think our government should support? Education? The Arts? Overseas spending? Healthcare? We already know we must pay tax, it's just a question of how much and for what. If you have an opinion about any of this, let your public servants know what it is. Email your House Representatives at: www.house.gov; Email your Senators at: www.senate.gov; Email the President and other Government officials at: www.usa.gov. For your state and local representatives, email: www.(your state or city abbreviation).gov. They do read what you have to say and they should know what you think.
Catch 22-A Tax Bill and No Money
As he carefully considered the bottom line and allowed his large tax bill to fully register, one of our members looked up at me and said, "My whole life has come down to taxes." While this comment was hardly a fair reflection of his whole life, it seemed at that moment to be an accurate, if somewhat hyperbolic assessment of his state of discomfort. And I really couldn't disagree with the poor guy. Everything we do, from filling out a W-4 form to choosing where and with whom to live, seems to be reduced to our tax bracket in one way or another. And for this member, it all really did come down to taxes as he sat vainly trying to think of ways to get out from under the balance due and continue to navigate the unpredictable waters of his chosen profession - the entertainment industry. He was a competent, well trained, talented professional whose chosen career was to give to others the sheer joy of experiencing his work as a performing artist. And the irony of it all did not escape him, either. The art and entertainment he provided to others seemed to be lost on him at that moment. We laughed about it as we worked to structure a plan for repayment, reduce penalties and get him back into the land of the fully functioning, taxpaying members of society. If you find yourself with a tax bill and unsure what your options are, don't be discouraged. Contact a tax expert who can give you some choices and peace of mind.
Withholding not Sufficient?
Over the last few years, as happens whenever the economy takes a downturn, artists may be the first to lose jobs or find new ones even harder to obtain. This can be a blow in a profession where maintaining gainful employment is uncertain at best and a struggle at worst. Add taxable unemployment compensation to the equation and you add insult to injury. Our members who qualify for and receive unemployment benefits have no control over the federal and state taxes to be withheld from each payment. They must first elect to have withholding and then accept the minimal amount taken out. Federal withholding is only 10% - but the taxpayer's final bracket may be higher when added to other income. In New York, the state withholding percentage is so low (2%) that it does not make an appreciable dent in the tax that will be due when filing the return and, because many states do not offer to withhold taxes at all, there is usually a state tax bill waiting next April, regardless of where your claim originates. Unemployment is not the only source of under-withheld income we see; you may have little or no federal withholding and none at all in your state if you work on a cruise ship and perform on the high seas. And if you work out of your home state, you will probably not have enough state tax withheld to cover the obligation to that state and your home state as well. The result is that you end up paying one or both of them when you file your returns. If you qualify for and receive third-party disability benefits, you will find that the weekly wages do not withhold federal or state taxes (though FICA and Medicare is covered) and you will be in a pickle next year when you owe tax. And the income source from which there is no withholding at all is your 1099 fee income. This is the independent contractor income you receive when you model, choreograph, direct, create recorded books or other voice-over projects from home, write, compose, or design. You know when you receive it that it's not subject to withholding, but do you plan for the tax that's going to be due when you file your returns? Probably not - at least not if you haven't had much experience with these kinds of earnings. Ask those who work a lot as independent contractors what they do and they'll likely tell you how they pay as they go.
"But if I could predict my income, I could pay the tax ahead of time!" That's the frustration of those who have earnings that have little or no tax withheld. So, here are two options to address this. Option #1: Save between 20%-30% of everything you earn and divide it between federal and state taxes (ask your tax adviser what the right amounts are for you - it'll depend on how much of your income is affected and whether or not you are paying two agencies or just one). Then, you send it in 4 times a year at prescribed quarterly intervals established by the IRS and your state - the dates are April 15, June 15, September 15 and January 15. You may pay on line or by mail. You may even apply any or all of your current tax refunds toward next year's estimated tax. When you want to set up estimates for next year, you may use the prior year's earnings as a safe haven (to avoid penalty) or you may repeat step #1. Option #2: This will not absolve you of penalty, but some taxpayers choose this option. Save the percentages needed as you earn the money and simply put those funds in the bank until you file your taxes and you'll have the cash necessary to pay the balances due. Before you figure you'll go with door #2, let me hasten to warn you that it'll cost you an underpayment penalty for not sending in the taxes as you earned the money. Ours is a "pay-as-you-go" system that compels all taxpayers, including individuals, corporations, trusts and estates, to keep the treasury going with regular infusions of capital so that it can pay its debts and keep government programs afloat. If you choose to pay all of your tax in April every year, you'll pay a premium to do so. Best to go back to Option #1. But, if you forget to send in the estimates, at least you'll have squirreled away the funds necessary to pay the tax when you file.
W-4 Form-Withholding Allowances
Now that we've figured out how to cover taxes by saving some of what we've earned, remember to file your W-4 Form with each employer in the way that reflects your actual status. Since you usually cannot predict your income, or the source of it, the best rule to follow is to file your actual number of dependents. We hear that members claim several children, helping them take home more pay because the withholding is lower - and that's certainly true. What it also may do is pull them up short when they file their returns. So, if you're single and you don't support anyone but yourself, put Single with zero or one withholding allowance. (The lower the number, the greater the tax withholding.) If you are married, only one of you may put Married on the W-4 form (don't ask; it's an arcane policy determination having to do with two incomes on one form). The other spouse puts Single or Married, but Withhold at the Higher Single Rate. Then each of you claims only the exemption that includes yourself. If there are children or other dependents in your household, determine which of you claims them or divide them up on your respective W-4 forms. Don't claim more people than actually exist. We see increasing problems with claims of many "dependents." Claim who and how many you actually are, unless you have a crystal ball and can predict the outcome.
IRS Emailed You a Warning? Not!
If you have found yourself a little short at tax time, you're not alone. Even if you're one of those who usually relies on getting a refund, you still might be caught in an attempted email scam to capture your personal information and credit card numbers. Many taxpayers have been receiving emails, purportedly from the IRS, stating that there was a shortfall in their withholding, a mistake in their computations, a recalculation in their liability - or some similar language, that leads the taxpayer to believe s/he owes money to the feds. This can be frightening - not only because it's from "the IRS," but because it says you owe them some dough! No one wants to hear from the IRS and absolutely no one wants to hear that they owe back taxes. Delete the email and do not open the attachment, if there is one! Here is the real deal on this. The IRS does not email taxpayers to collect taxes or to inform them about their returns. Period. If your instincts told you it was a scam, you were right. Stay tuned, however, for the state procedures on this. New York is making noises about doing away with all snail mail notices and using email to contact taxpayers. This has not come about as yet, but we will let you know if it does. We will be checking with various states and, in the meantime, encourage everyone to refrain from including an email address on any tax forms.
Get More Information
For more information on these and other tax issues, consult your own tax adviser or stop in at your VITA office. Starting on Monday, February 4, 2013, the New York VITA office is open Mondays, Wednesdays, Thursdays and Fridays (no Tuesdays) from 10:30 to 4 on the 14th floor of the New York Equity Building. Telephone 212-921-2548. Other VITA Programs for AEA members are in Seattle (at the AFTRA Local), Los Angeles (at The Actors Fund) and Orlando (at the Equity offices). Contact regional offices for details.
Sandra Karas is the Director of VITA, Secretary-Treasurer of Equity and a member of SAG-AFTRA.