Tax day is here, and there are several important things to keep in mind to ensure you file correctly and avoid future issues. Understanding your W-2 form is crucial, as it contains vital information about your earnings and tax withholdings for the year.
Understanding Your W-2 Form
Box 1: Wages, Tips, and Other Compensation
This figure represents your taxable income—not necessarily your total earnings. It’s important to understand that Box 1 is reduced by:
- Pre-tax 401(k) contributions
- Pre-tax health insurance premiums
- Pre-tax flexible spending account contributions
- Other pre-tax benefit deductions
For example, if your annual salary is $75,000, but you contributed $10,000 to your 401(k) and paid $5,000 for health insurance premiums pre-tax, Box 1 would show approximately $60,000.
Boxes 3 and 5: Social Security and Medicare Wages
These boxes show the amounts subject to Social Security and Medicare taxes. Unlike Box 1, these figures include your 401(k) contributions since you do pay FICA taxes on retirement contributions. However, they still exclude certain pre-tax benefit deductions.
Box 12: Coded Amounts
This box contains letter codes and amounts for various types of compensation and benefits:
- Code D: 401(k) contributions
- Code W: HSA contributions
- Code DD: Employer-sponsored health coverage cost
Box 13: Checkbox Items
If the “Retirement plan” box is checked, this indicates you participated in an employer retirement plan during the tax year. This status may limit your ability to make tax-deductible contributions to a traditional IRA, depending on your income level.
Boxes 15-20: State and Local Information
These boxes contain information about state and local taxes withheld. In our increasingly remote work environment, this section can become complex if you worked in multiple states or jurisdictions.
Tax Filing Extensions
If you need more time to file your tax return, you can request an extension using Form 4868, which gives you until October 15 to file. However, remember:
- An extension to file is not an extension to pay. You must still pay your estimated tax liability by the April 15 deadline.
- Include payment for your best estimate of taxes owed when filing your extension to avoid penalties and interest.
- State and local tax extensions may need to be filed separately, depending on your location.
Considerations for Remote Workers
With the rise in remote work, tax situations have become more complex:
- If you moved to a new state during the tax year, you may need to file part-year resident tax returns in multiple states.
- Some states have reciprocity agreements that prevent double taxation, but not all do.
- Notify your employer immediately when relocating to ensure proper tax withholding.
- Consider consulting with a tax professional if you work remotely from a different state than your employer is located in.
Common Tax Filing Mistakes to Avoid
- Missing the deadline: File on time or file for an extension to avoid late filing penalties.
- Math errors: Double-check all calculations or use tax software to reduce errors.
- Incorrect direct deposit information: Verify your bank account details to ensure your refund reaches you.
- Forgetting to sign and date: An unsigned tax return is considered invalid.
- Overlooking tax credits and deductions: Make sure you claim all eligible credits and deductions.
Final Tips
- Keep copies of all tax documents for at least seven years.
- If you receive a tax notice from the IRS, respond promptly.
- Consider using direct deposit for faster refunds.
- Check your tax withholdings periodically throughout the year to avoid surprises at tax time.
- If your tax situation is complex, consider working with a qualified tax professional.
Need help navigating complex tax situations? Contact Kona HR today for expert guidance on payroll, benefits, and tax compliance. Our team of HR professionals can help you avoid costly mistakes and optimize your tax strategy. Visit www.konahr.com or call us now!
