The middle of calendar year 2026 is less than one month away. Now is a good time for employees and retirees to perform a mid-year tax checkup for the year 2026. Among the reasons to perform a mid-year tax check:
‧ A mid-year tax checkup can help an individual avoid stress and make necessary adjustments during the year in order to help increase one’s refund or lower one’s 2026 tax bill.
‧ Reviewing one’s taxable income and deductible expenses helps an individual get a clearer picture of where the individual stands with current year taxes.
‧ Reviewing one’s federal income tax withholding on one’s W4 mid-year can alert the individual to any necessary adjustments the individual has to make in order to lower the amount of taxes the individual owes next spring.
‧ Making an estimated tax payment during mid-year can help an employee or retiree stay ahead of the individual’s obligation, avoid penalties, and manage one’s cash flow, and
‧ For federal employees, reviewing the amount and type of Thrift Savings Plan (TSP) contributions can help an employee take advantage of valuable tax breaks while helping the employee save for the future.
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To assist with their mid-year tax check-up, employees and retirees may want to consider meeting with a tax professional. A tax professional should be able to assist and to answer questions in the following ways:
‧ Tax laws can and do change during the year. Life changes such as getting married or divorced, adding or losing a tax dependent can have a big impact on an individual’s annual tax liability.
‧ A mid-year tax checkup will hopefully prevent a shocking tax bill when the annual tax return is filed next spring. By reviewing one’s taxable income, deductible expenses and possible tax credits halfway through the year, an individual can catch up with any changes that may affect their annual tax situation and adjust accordingly.
‧ A mid-year tax checkup is not just about knowing about an employee’s annual tax liability. A tax checkup is also about what maximizing the employee can save and potentially what the employee can get back via a refund. A mid-year tax review may uncover opportunities for a federal employee to increase contributions to the traditional TSP and/or to a Health Savings Accounts (HSAs) thereby reducing taxable income and the amount of federal income taxes owed; and
‧ For federal retirees age 73 and older, a mid-year tax checkup could prevent missing a required minimum distribution (RMD) from traditional retirement accounts such as the traditional TSP, traditional IRAs and traditional qualified retirement accounts, such as 401(k) plans, that the retiree previously contributed to.
Performing an Income/Expenses and Cash Flow Analysis
An important part of performing a mid-year tax checkup involves a review of one’s income sources and how the income is spent. There are several reasons for doing this:
‧ Analyze sources of income. For most federal employees, sources of income include an individual’s main job (federal employment), any side jobs, investment and rental income. Understanding how much an individual has earned and how much of that income is taxable helps the individual plan for taxes better.
‧ Analyze how the income is spent. In addition to knowing how much an individual earns, it is also important to see “where the money goes,” also known as a cash flow analysis Look for expenses that can be deducted from one’s taxes, including medical bills and charitable contributions.
‧ Identify possible tax deductions. Mid-year is a good time to identify deductions that are easy to miss. This includes medical bills, charitable donations, child-care expenses and higher education expenses. These deductions may help lower an individual’s federal tax liability or potentially increase one’s tax refund.
‧ Major life changes during the year. Most life changes such as marriage, having children, supporting children in college, supporting parents, or divorce can dramatically change an individual’s annual tax liability. It is important to look at one’s W-4, Federal Income Tax Withholding, and the equivalent state income tax withholding form, after any major life change and adjust one’s withholding as needed.
Consider Making Estimated Tax Payments
When it comes to taxes, it is important for individuals to stay proactive. Making estimated tax payments mid-year can result in less anxiety and problems when taxes are filed the following spring. There are a few reasons why individuals may have to make federal (and perhaps state) tax payments:
‧ Making estimated tax payments allows an individual to spread out their tax payments throughout the year. This can help the individual manage their cash flow effectively. Instead of facing a large tax bill all at once at the time of filing one’s tax return, an individual can pay smaller amounts quarterly; and
‧ If, at the time filing their filing their federal income return, an individual owes more than $1,000 in federal income taxes after accounting for withholding and tax credits, the individual may face IRS under withholding penalties. The underpayment penalties can be avoided or minimized if the individual has made estimated tax payments during the year..
By making estimated tax payments, an individual can stay ahead of their annual tax obligations, avoid IRS under withholding penalties, and manage their cash flow more effectively.
Finally, the middle of the year can be an ideal time for federal employees to evaluate their retirement savings, particularly with respect to the Thrift Savings Plan (TSP). Employees should routinely be asking whether they are contributing enough each year to the TSP. Both employees and retirees should look at their traditional TSP and Roth TSP accounts. Which account has a larger balance? Looking into the future, the traditional TSP account will be fully taxable when withdrawn. Qualified Roth TSP withdrawals are income tax-free. The traditional TSP account will be subject to required minimum distributions (RMDs) when the TSP participant reaches their required beginning date (RBD), currently April 1 following the year a retired TSP participant reaches age 73. The Roth TSP is not subject to RMDs.
If an employee or retiree is concerned about the tax consequences with respect to future traditional TSP withdrawals, then they may want to consider performing Roth TSP in-plan conversions. These conversions will result in immediate tax consequences for the traditional TSP participant. Before performing any Roth TSP in-plan conversion, an employee or a retiree is advised to consult with a qualified tax advisor to discuss the tax issues associated with Roth TSP in-plan conversions. These conversions can be performed every year. A meeting with a tax advisor at this time of year would be ideal to determine if this year would be appropriate to start performing these conversions.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019
