Happy Feb. 29! Here's to a great extra day in 2020.
I know I've joked (sort of) about how nice it is to have another day to work on your taxes, but there really is a Leap Year potential tax connection.
SentricHR, a cloud-based payroll and human resources software company, points out in this weekend's Saturday Shout Out item that while an extra pay period can show up any year depending on a business' pay system, a leap year increases the chance that workers can collect extra pay.
Generally, an extra pay period affects salaried employees paid weekly or biweekly, notes SentricHR's blog. In 2020, there are 53 Wednesdays and 53 Thursdays. That means weekly or biweekly salaried employees paid on either of these days will get an added pay period.
Leap Year's payroll possibilities: Now that might not seem like a bad thing, but there are some considerations, tax and otherwise for both employers and employees.
There are health plan and other benefits deductions to consider.
And, of course, there's income tax withholding. SentricHR says:
"The IRS doesn't require changes to income tax withholding when there are extra pay periods, but you should still ensure calculations are adjusted appropriately. If you don't, you might not withhold enough federal income tax. Be sure to check state and local income taxes too, as the potential for underwithholding may be greater. Also let your employees know that they should adjust their calculations for income tax withholding if they want to withhold more or less than the standard amount."
That last sentence bears repeating: Also let your employees know that they should adjust their calculations for income tax withholding if they want to withhold more or less than the standard amount.
Adjusting your withholding: Even if your boss hasn't contacted you about potential tax implications of this 2020 Leap Year, it's a good idea to do a paycheck check-up.
That's especially true if you've already filed your 2019 taxes and discovered you're getting a big refund or owed taxes.
The IRS' online Tax Withholding Estimator can help you determine the precise amount that should be coming out of your paychecks, for both this and other regular, 365-day years.
The tax agency reworked the online calculator to more accurately reflect the changes under the Tax Cuts and Jobs Act, which skewed withholding and refunds when the tax reform law first went into effect.
The withholding estimator's result for your work and tax situation will tell you what to enter in the new W-4 form you'll file with your payroll office.
I totally understand if you don't want to spend this extra day messing with your tax withholding. But it would be a good idea to check it once we get into the regular month of March and its 31 days.
You also might find these items of interest:
- Tax refunds are nice, but savings provide a better payoff
- A sharing economy earnings checkup can help gig workers avoid filing season surprises
- Tax reform's family-related changes mean taxpayers with dependents need to check withholding