Answers to Common Tax Questions

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The W-4 is the tax form you provide your employer to let them know how to calculate how much in federal income tax to withhold from your paycheck. The IRS changed the W-4 in 2020, unfortunately, and made it more difficult to prepare. With it being a bit unpredictable to use, I believe the following process is the easiest way to increase your federal withholding: 

1. This process starts with you knowing how much you need to increase your federal withholding by. This might be from someone else who was hired to do tax planning, or it might be from your own calculations because you didn’t like owing as much as you did from your most recently filed return. If the number is from me, you will probably be told you need to increase your federal withholding by $x amount per year. For this example, let's say you need $2,400 more in federal withholding per year (12 months). 
2. Get a copy of your most recent paystub or comparable payroll report that shows you how much federal income tax is withheld from a normal paycheck. As an example, let’s say it shows you had $40 withheld from your last check and you get paid twice a month (24 paychecks in a twelve-month period of time). 
3. Complete a new form W-4 by either finding one online or asking your human resources/payroll contact for a copy. Make sure you mark the correct filing status. If you are married and each of you have a job, check the box in step 2c. You are going to want to put an amount on line 4c that is equal to the annual increase you need divided by the number of paychecks you receive in a twelve-month period of time. For our example, you need $2,400 more per year and receive 24 paychecks in a year, so your per paycheck increase is $100. You would put $100 on line 4c. 
4. Submit the new W-4 to your employer. 
5. Once you notice your paycheck being affected by the new W-4, look at the paystub or payroll report for that paycheck. You will want to see how much federal withholding you now have. Using the example, it should have went up $100 and be $140. It was $40 per paycheck before the W-4 and should be $140 after it. If the difference in federal withholding between the two paystubs is $100, then you are good to go. If the difference is something other than $100, you will have to complete another W-4 and adjust the line 4c $100 amount up or down based on what the difference is from what it should have been. 
6. Submit the second W-4 if you had a difference to correct. If everything was good after submitting the first W-4, you are done. 
7. Repeat steps 5 and 6 until you get your federal withholding to where you need it to be on a per paycheck amount.    

If you need to increase how much federal withholding you are having withheld from your social security benefits, or you want to start withholding from your benefits after having not done so in the past, you should know that you can only choose withholding percentages rather than picking, or increasing or decreasing by, a specific dollar amount. You will have to choose 0%, 7%, 10%, 12%, or 22%. As an example, let's say you receive gross benefits of $42,000 per year or $3,500 per month. Your social security tax form shows federal withholding of $2,940 for the year. If you divide the $2,940 by $42,000, you will get 7% and will then know what your current withholding percentage is. If you know you need an additional $2,000 of federal withholding and have chosen to have that increase come from your social security benefits, add the $2,000 to your current annual withholding amount of $2,940 for a total of $4,940. Divide the new amount ($4,940) by your gross benefits ($42,000) and see what percentage you get ($4,940/$42,000 = 11.7%). Pick the social security percentage that is the next highest one in order to avoid being underpaid, which in our example would be 12%. 

After figuring out what your new percentage should be, contact a social security office and let them know the percentage you want to use. I would recommend calling them rather than filling out a form and submitting it, but there are a number of options available to make the change. See the social security website for options on how to request withholding of taxes.    

If you need to increase how much federal withholding you are having withheld from your retirement benefits, or you want to start withholding from your benefits after having not done so in the past, I would recommend you contact your retirement benefits representative or company to get assistance with actually making the change. You can tell them you need an additional $x amount of federal withholding and hopefully they will do the math for you, tell you what percentage you need, and make the change to that percentage. If they tell you that you have to provide the percentage to them, find your most recently filed federal income tax return (1040). You will want to find the "taxable income" amount and the "total tax" amount. Taxable income is line 15 on the 2023 and 2024 1040 and total tax is line 24. Divide total tax by taxable income to come up with a percentage. For example, if line 15 taxable income is $80,000 and line 24 total tax is $8,500, divide $8,500 by $80,000 to get 0.10625 or 10.6%. The 10.6% is your effective tax rate and can be used as a rule of thumb for how much withholding you would want from your retirement benefits. You would tell your benefits representative or benefits company to use a round up percentage of 11%.    

The WH-4 is the tax form you provide your employer to let them know how to calculate how much in Indiana state and county income tax to withhold from your paycheck. I would recommend doing the following: 

1. Similar to the process of increasing your federal withholding, you will need to know how much to increase your state withholding by. You might determine this amount by hiring someone else to do tax planning, or it might be from your own calculations because you didn’t like owing as much as you did from your most recently filed return. If the number is from me, you will probably be told you need to increase your state withholding by $x amount per year. For this example, let's say you need $720 more in state withholding per year (12 months). (Note that we are going to focus on state income tax rather than county income tax. As long as the WH-4 has the correct county you lived in on January 1, the county withholding amount should be fine. It can make it simpler to just focus on the state income tax withholding amount.)
2. Get a copy of your most recent paystub or comparable payroll report that shows you how much state income tax is withheld from a normal paycheck. As an example, let’s say it shows you had $10 withheld from your last check and you get paid twice a month (24 paychecks in a twelve-month period of time). 
3. Complete a new form WH-4 by either finding one online or asking your human resources/payroll contact for a copy. Make sure you claim the correct number of exemptions. You are going to want to put an amount on line 9 that is equal to the annual increase you need divided by the number of paychecks you receive in a twelve-month period of time. For our example, you need $500 more per year and receive 24 paychecks in a year, so your per paycheck increase is $100. You would put $30 on line 9. 
4. Submit the new WH-4 to your employer. 
5. Once you notice your paycheck being affected by the new WH-4, look at the paystub or payroll report for that paycheck. You will want to see how much state withholding you now have. Using the example, it should have went up $30 and be $40. It was $10 per paycheck before the WH-4 and should be $40 after it. If the difference in state withholding between the two paystubs is $30, then you are good to go. If the difference is something other than $30, you will have to complete another WH-4 and adjust the line 9 $30 amount up or down based on what the difference is from what it should have been. 
6. Submit the second WH-4 if you had a difference to correct. If everything was good after submitting the first WH-4, you are done. 
7. Repeat steps 5 and 6 again until you get your state withholding to where you need it to be on a per paycheck amount.    

Social security cannot withhold state taxes from the benefits you receive. You may have to pay estimated tax payments in order to avoid underpayment penalties IF you have no other sources of withholding you can increase. The amount of social security benefits that are taxable on your federal return are deducted on your Indiana return, which means social security benefits are not taxable to Indiana. If you were hoping to have state tax withheld from it to cover state tax from other sources of income like interest and dividends, you'll instead have to pay estimates or increase state withholding from your retirement benefits (if you receive any that is).    

If you need to increase how much state withholding you are having withheld from your retirement benefits, or you want to start withholding from your benefits after having not done so in the past, I would recommend you contact your retirement benefits representative or company to get assistance with actually making the change. You can tell them you need an additional $x amount of state withholding and hopefully they will do the math for you, tell you what percentage you need, and make the change to that percentage. If they tell you that you have to provide the percentage to them, I would tell them you want 6%. Then confirm with them that you have 6% state withholding. 

If you find that you are significantly overwithheld next year when you file your Indiana return, you can decrease your state withholding rate to 4% or 5% by contacting them again. If you find you are still underwithheld next year when you file your return, have them increase it to 7% or 8%.    

No! You don't have to make them. The purpose of making them is to avoid paying a lot of tax at one time when you go to file your returns. The IRS also penalizes taxpayers for having paid in too little throughout the year. But these are optional payments that are not required. The real question is if you should pay them.    

Taxes are pay as you go which means you should pay most of your tax throughout the year as you receive income rather than paying it all at the end of the year or when filing your taxes. Paying in as you go serves two main purposes: 

1. Reduce the amount you owe when you do file your return. 
2. Prevent you from paying penalties and interest due to paying in too little throughout the year. 

The two ways to pay in as you go are: 

1. Withholding from your pay (W-2), your social security income, or your pension and retirement income. 
2. Making quarterly estimated tax payments during the year. 

The higher your taxable income, the more tax you will owe when you file your returns. The more you owe when you file your returns, the higher your underpayment penalties and interest might be. I would most definitely recommend paying estimates for taxpayers who have significant amounts of taxable income from sources where withholding is not taken from it, such as having their own business, rental properties, or investment income like dividends and interest. What is significant or insignificant can depend on each taxpayer. Owing $2,000 in tax plus underpayment penalty and interest of $175 is significant to some and insignificant to others. A financial planner or financial adviser could discuss the potential pros and cons of sending money to the government interest free in order to avoid a penalty rather than investing it, but that discussion is situation specific and varies person by person. My short answer to this question is yes, a taxpayer with significant taxable income from sources of income that doesn’t withhold taxes should pay estimates every quarter (in general, by 4/15, 6/15, 9/15, and 1/15 of the next year).    

Withholding is easier because you don't have to track and make the actual estimated tax payments four times a year. Withholding is automatically taken out of your income and sent to the IRS or state so it requires very little effort on your part. Withholding also has the advantage over estimated tax payments in that the IRS treats withholding as being paid evenly throughout the year no matter when it is actually paid. If you have a retirement distribution sent to you every December and have federal withholding taken out at that time, that withholding is treated as being made evenly throughout the year which helps significantly when calculating underpayment penalty and interest. If you only made an estimated tax payment in December and ignored the other payment due dates, you would potentially owe underpayment penalty and interest even if you have a refund when you file your return! 

You might be required to use estimated tax payments if you do not have a W-2, social security benefits, or retirement distributions to withhold tax from. If you do have a W-2 but it doesn't have the ability to provide enough withholding for a self-employment business, rental income, or some other source of income that doesn't have taxes automatically withheld, then you might want to pay estimates to avoid potential underpayment penalties and interest. 

If an opportunity is available to use withholding rather than estimates, I would always recommend setting up withholding and stop making estimated tax payments.    

Filing an extension means Form 4868 is submitted to the IRS for your federal return. Indiana accepts the federal extension as its own extension as long as the 4868 was timely submitted. If you need to make a payment with your Indiana extension, file both the federal 4868 and the Indiana extension which is Form IT-9. 

Filing an extension gives a taxpayer an extra six months to file their federal return. The federal extended due date is October 15. As long as you timely submit the 4868, you will have an extra seven months to file an Indiana return. The Indiana extended due date is November 15. 

Filing an extension only gives taxpayers extra time to file their return. It does NOT give them extra time to pay any tax they owe on April 15. This applies to both federal and Indiana. 

As long as an extension was timely filed, a taxpayer will not have to pay failure to file penalties and interest by filing their return by the extended due date. 

There are three ways to file a federal extension: 

1. If you are making a payment with your federal extension and are paying electronically, you don't have to submit an actual paper form 4868. The 4868 is considered filed once you complete the electronic payment process. See the form 4868 instructions or www.irs.gov/Payments for electronic payment options. If you don't need to make a payment with your extension, you won't be able to use this option. 
2. Electronically file form 4868 through a tax preparer or tax software package. I will e-file extensions on April 10 for clients I have engagement letters for but haven't been able to finish yet. If you need to make a payment with the extension and are using this option, you can still make a payment electronically or pay by check or money order. See the form 4868 instructions or www.irs.gov/Payments for electronic payment options. 
3. Mail a paper form 4868. I will not offer this option as electronically filing them is quicker and more efficient. If you are going to mail your own extension and need to include a payment, see the form 4868 instructions. 

There are three ways to file an Indiana extension:

1. Online using INTIME. See intime.dor.in.gov for more information about this option. You can make a payment with this option. 
2. Electronically file form IT-9 through a tax preparer or tax software package. As mentioned above, the IT-9 is only needed when a payment needs to be made. Since I will not be handling extension payments, I will not be e-filing any Indiana extensions on April 10. If you are using this option and need to make an Indiana extension payment, you should mail a check or money order. See Indiana Form IT-9 instructions for how to pay with a check or money order. 
3. Mail a paper form IT-9. I will not offer this option as explained above. If you are going to mail your own extension and need to include a payment, see the Form IT-9 instructions.     

Payment needed with federal extension: 

If you need to make an extension payment for your federal return by April 15 but don't know how much to pay, I would start by looking at your prior year federal return (1040). See if you can find the following amounts: 

1. How much did you pay at the prior year April 15 extension deadline? If you made a payment, it will show up on Schedule 3, Part II, line 10. If you can't find Schedule 3, you probably didn't make an extension payment. 
2. How much did you owe with your tax return or how much were you overpaid? Look at the amount you "overpaid" which is on page 2 of the 1040, line 34. If there is an amount on that line, that is the number you need for this step. If there isn't a number on the overpaid line, look at the "amount you owe" line 37. If there is an amount on the amount you owe line, this is the number you need for this step.

Now add the amount you paid with your prior year extension (the step one amount) to the amount you owed (step two amount). If the step two amount was an overpayment, you will take the step one amount and subtract from it the step two overpayment amount. The number you end up with would be a rough estimate of how much you could pay with your current year federal extension. This estimate assumes a current year income situation similar to what you had for the prior year. 

Payment needed with Indiana extension:

If you need to make an extension payment for your Indiana return by April 15 but don't know how much to pay, the process would be similar to the federal one up above but is a bit trickier because of how Indiana has the forms set up. The federal return has a specific line on Schedule 3 of the 1040 that says how much the extension payment was, but Indiana combines an extension payment with any estimated tax payments on Schedule 5, line 4 of the IT-40.                   

Start by looking at your prior year Indiana return (IT-40). See if you can find the following amounts: 

1. How much did you pay at the prior year April 15 extension deadline? If you know for a fact that you do not make estimated tax payments, you can use the amount on Schedule 5, line 4 as this amount. If you know you made estimated tax payments or you aren't sure if you did, you have to assume zero for this amount. 
2. How much did you owe with your tax return or how much were you overpaid? Look at the "overpayment" amount which is on page 2 of the IT-40, line18. If there is an amount on that line, that is the number you need for this step. If there isn't a number on the overpayment line, look at the "amount you owe" line 26. If there is an amount on the amount you owe line, this is the number you need for this step.

Now add the amount you paid with your prior year extension (the step one amount) to the amount you owed (step two amount). If the step two amount was an overpayment, you will take the step one amount and subtract from it the step two overpayment amount. The number you end up with would be a rough estimate of how much you could pay with your current year Indiana extension. This estimate assumes a current year income situation similar to what you had for the prior year. 

For both federal and Indiana extensions:

If you know you have income for the current year that you didn't have last year and that income did NOT have any withholding taken out from it, you could take the amount you figured out for the federal extension up above and add 10% of the gross income received. For the Indiana extension, add 5% of the gross income received to the amount you calculated for the Indiana extension up above. For example, if you started a business in the current year being filed then you have new income that wasn't on your prior year return, and this new income wouldn't have any withholding taken out of it. We're assuming no estimated tax payments were made either (if you made estimated tax payments for this new income, don't add the 10% federal or 5% Indiana amount to your above calculated amounts). If the gross amount you received was $100,000, ten percent of this is $10,000. If you calculated a federal extension payment up above of $4,000, you'll add $10,000 to it and pay in $14,000 with your federal extension. Five percent of $100,000 is $5,000 so you would add $5,000 to whatever Indiana extension amount you calculated up above.      

As long as you file your returns before the extended due dates, you will not have to pay the failure to file penalties and interest. If you didn't file an extension by April 15, then you'll owe the failure to file penalties and interest. 

Tax is due April 15 even if you file an extension. Any payments of tax required after April 15 will be subject to failure to pay penalties and interest. 

If you happen to forget to file an extension and also owe when you go to file your return in July, you'll be hit with the failure to file penalty, failure to file interest, failure to pay penalty, and failure to pay interest. 

The calculations involved with this can take some time to do and are more involved than what I can try to summarize here. I recommend trying to find an online calculator. One that is free and I have used before is https://www.efile.com/late-tax-filing-penalty-calculator/.  If you are able to find and use that calculator, the tax return filing date should be the date your returns will be e-filed. Don't put April 15 for this date. The date taxes paid date should be the day you paid online or mailed a check for what you owe. Don't put April 15 for this date. 

Indiana charges a penalty if you file your tax return after April 15 and have an amount due. The penalty is 10% of the amount due or $5, whichever is greater. You won't have the penalty if you filed an extension, file and pay the remaining tax due by November 15, and had paid in at least 90% of the amount due by April 15. Indiana charges interest if your tax return is filed after April 15 and you have an amount due. The interest will be charged even if you have a timely filed extension. Interest is calculated from the due date until the date the tax is paid. The interest rate may vary from year-to-year and was 2% in 2023, 4% in 2024, and 6% for 2025. Indiana Departmental Notice #3 is where the most current interest rates can be found. 

I don't know of an online calculator to assist with the calculation of Indiana's penalty and interest. Indiana will calculate this and send a notice telling you how much the penalty and interest is.    

There are many 1099 information returns that a business might have to file. The entire list is too long to reasonably describe here. The IRS has a very useful information return guide that can be found in the "General Instructions for Certain Information Returns" instructions. Search your web browser using the above words and you should be able to find it. If you are looking at the IRS webpage for the "General Instructions for Certain Information Returns" then you should be able to find a table towards the end of the page. If you are looking at the PDF version of the instructions, the table should start about six or seven pages from the last page of the PDF. This table also provides the due dates for when you must file the forms with the IRS and also give them to recipients. 

Most businesses only have to focus on two of the many 1099s listed in those instructions. Those two are the 1099-NEC and the 1099-MISC. A 1099-NEC is for nonemployee compensation while a 1099-MISC is for miscellaneous information. A business might be required to file other information returns, but these are the most commonly needed forms. Please note that payments your business makes with a credit card or payment card, and other third-party network transactions such as with Venmo and Square, must be reported on a 1099-K but not by your business. The payment settlement entity reports to the IRS credit card, payment card, and third-party network type of payments. You will want to make sure you don't include those types of payments with your other payments that were made by cash, check, wire-transfer, electronic check, ACH, or online bill pay. 

Only payments made in the course of your business should be reported on the 1099. Personal payments are not included on the 1099. You are "engaged in business" if you operate for gain or profit. An activity that is a hobby would not file 1099s because it is not a business. The reporting period is the most recently completed tax year. 

The most common payments reported on a 1099-MISC are the following: 

• At least $10 in royalties. 
• At least $600 in rent, prizes and awards, and other income. 
• See the "instructions for forms 1099-MISC and 1099-NEC" for a complete list of payments needed to be reported in each box. 

Payments to corporations do not have to be reported on a 1099-MISC, however, gross proceeds paid to an attorney must be reported in box 10. Note that gross proceeds paid to an attorney are NOT the same as paying fees to an attorney to perform legal work. Payments to an attorney to perform legal work is reported in box 1 of form 1099-NEC. 

Payments for merchandise, telephone, freight, storage, business travel allowances paid to employees, and employee business expense reimbursements are not reported on a 1099-MISC or a 1099-NEC. 

The most common payments reported on a 1099-NEC are the following: 

• At least $600 in services performed by someone who is not your employee. Include the amount that is for parts or materials as long as supplying the parts and materials was incidental, or minor, to providing the service. 
• At least $600 in payments to an attorney for legal services provided to your business. 
• See the "instructions for forms 1099-MISC and 1099-NEC" for a complete list of payments needed to be reported in each box. 

It is a best practice to acquire a Form W-9 from each vendor or contractor you do business with. The W-9 provides information that allows you to determine if the vendor or contractor will need a 1099 in the future and if they do, the information you have to include on the 1099.    

You should RECEIVE a 1099-MISC reporting rental income you received. The 1099-MISC forms you receive should come from your tenants IF your tenants are businesses. If your tenant is an individual that isn't a business, you shouldn't receive a 1099-MISC. 

As long as your rental property is considered a business, you would have the same filing requirements as shown above for owning a business. Most of the time landlords will not issue 1099-MISC forms. They will primarily only have to issue 1099-NEC forms. 

Please refer to the above question regarding owning your own business and issuing 1099s.