 Income Tax 2023-2024 W-2 Income Tax Software Example Get ready and some coffee so we can lessen the sting of the IRS smack with Income Tax Preparation 2023-2024 First, a word from our sponsor Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our trust me I'm an accountant product line Yeah, it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com Here we are in our form 1040 example problems using LASERT tax software you don't need tax software to follow along but if you have access to tax software it's a great tool to run scenarios with you can also get access to the forms schedules instructions at the IRS website at irs.gov irs.gov starting at our normal starting point with Adam Taxman just trying to avoid a dang tax man living in 90210 Beverly Hills we're back to a single filer status to start off with no dependence W2 wages are starting point as usual 100,000 standard deduction for a single file or $13,850 getting us to the $86,150 taxable income marrying that in our Excel worksheet 100,000 $13,850 standard deduction $86,150 taxable income the tax calculated by the software on page 2 was $14,266 as we could see on page 2 here $14,266 and then we'll get into the payments or withholdings which we don't have at this point in time at our starting point now when we think about the first line item here this is going to be our most common line item we first think about typically coming from that W2 form so let's take a look at a W2 form the most important boxes typically will be box 1 and 2 those having the big impact on the tax return box 1 providing the federal income tax box 2 the withholdings that the employer was forced to take out of the employee wages and then of course we have box 3 which is going to be the social security which is usually going to be more of a reporting form here possibly not having a big income tax effect because it's a social security tax social security taxes and then box 5 is the Medicare similar kind of thing you can see box 1, 3 and 5 then are the actual three forms or three types of income which could be all the same but also could differ and then oftentimes the confusion comes over in these boxes over here where they could have different things that are basically taking place type types of benefits for example and then we also have this checkbox that could be important for with regards to the retirement for example if you have state taxes then the state information is going to be important down below states could have an income tax but they may not they may be providing their their tax needs with say a sales tax for example we hear focused in on the federal on the federal side of things now also note that when you see anything marked in say box 12 you'll you'll also have the instructions if the instructions will typically come with the W2 if they're not provided by the clients you can go to the IRS website and then pick up the instructions so you can look at the instructions from the IRS so here's a part of those instructions and then instructions for the employee and you can see here we have importantly the box 12 instructions which could give you more information if you're confused about something that's entered in box 12 and possibly have some code in it here or say on the next page once again you have more kind of codes that could be in there to help give you indication of what is included in box 12 and then if you need to do further research based on this information you can drill down from there and further your research alright so let's just run a couple of our examples this first one we had 40,000 in wages and everything was the same for the wages box one three and five being the same because there were no 401k plan withholdings and they didn't hit the cap for Social Security what would what would that look like over here we're going to go okay let's say it's W-2 income 40,000 of the income and then the federal income tax you have to do the data input for this one because it's not a flat tax the software cannot calculate it so we're going to say it came out to 4,000 I'm going to say 4,000 now notice here is guessing this software is guessing that the Social Security wages is the same that is not a guaranteed that will not always be the case but could often be the case and it's correct in this case if this number is correct then the Social Security will be calculated for us because it's in essence a flat tax so if I have the 40,000 Social Security wages then 0.062 is going to be the Social Security rate giving us the 2480 so I don't actually have to do the data input there the same is true for the Medicare wages it's guessing that's the same as the total wages may not always be the case but often the case once I get that number correct the software can calculate the tax because it's basically a flat tax rate 40,000 times 0.0145 in this case that's going to give us the 850 so and obviously you're going to have to give more information with regards to the employee or information on the W-2 form such as the identification number and the address because as the we can give more information to the government because of computers they want more information they want to know everything about you they're going to put that computer chip right on your forehead pretty soon drill it in there so you can't you know you can't get it out of there because they're not liking the fact that they have to rely on the cell phones these days because then you could put that thing down if you wanted to whereas if they drilled that chip right in your forehead okay any case let's uh if we scroll down here we've got the 40,000 of wages now and then we still have the standard deduction the 13,850 we can mirror that over here that means the taxable income is at 86,150 so we have the taxable income wait what happened W-2 income let's change the income 40,000 getting ahead of yourself don't get ahead of yourself 26,150 I hate waiting for myself I'm so slow you have to wait for yourself page two tax is calculated at 2921 so then we're going to go okay 2921 and then there it is and then we saw that the withholdings 4,000 so I'm going to go and say okay on the withholdings payments and credits tab I'll say W-2 first job W-2 W-2 one was I withheld uh 4,000 should get it from here 4,000 boom 4,000 that's going to pull on to the my formula so there's the 4,000 so I have a refund of 1,079 and so I can say okay does that tie out here 1,079 on the refund so that's the general basic basic type of W-2 form obviously we could have more than one W-2 form so we could have imagined that we worked at two locations so if I was to do that and so let's just say we double this W-2 form and this was W-2 one again I'm going to use the same location but let's say this is another 40,000 we'll just double it 4,000 so now I have two W-2 forms that are adding up to a total of 80,000 both of them withheld the 8,000 so we have the social security wages up to the 80,000 and so on and so forth if I go back on over and say okay let's check that out so now I've got the 80,000 if I mirror that on this side I'm going to say income this was second W-2 form W-2 2 of 40,000 and then we withheld another on W-2 to 4,000 total withholding is 8,000 pulling that over so that means 80,000 minus the 13 out 850 same standard deduction should give us to 66,150 so if I look at page 1 13,850 gets to the 66,150 page 2 calculating the tax at the 9,866 so I'm going to plug that in 9,866 and the payments were 8,000 so now we have an amount due of 81866 so 1866 and and so then there's the penalty of 45 let's put 45 to get us to the 1911 now you might say how in the world did that happened because I got a refund at 40,000 and then I doubled everything including the withholdings and now I owe money why because because we have a progressive tax rate that second 40,000 was taxed as a as a much higher tax rate the first 40,000 highest bracket was at was at the 12% the highest dollar amount on that last 40,000 was taxed at a marginal rate or the last hit rate of the 25% that's the progressive tax system now note that you could run into it notice what's happening here is we're not doing much with with the social security Medicare because these are flat taxes they're not having a big impact impact on the tax return because these are kind of more informational things because they've already been paid through the employer withholding but you can imagine that cap happening where we saw that the cap I believe is at the 160,200 what if you had two different w twos where the combined wages goes over that cap that could cause a problem let me show you what I mean so we're going to say let's go back on over to the detail and let's say that this second one is a hundred and a hundred and fifty thousand right it's a hundred and fifty thousand so then if you tell if you calculate the social security tax on that you'd say okay it was one hundred and fifty thousand times point oh six two that's going to be the nine thousand three hundred but the same taxpayer also paid the two thousand four eighty and so the total being paid is eleven thousand seven eighty but there's supposed to be a cap of I think it's the one day sixty thousand two hundred times point oh six two see so there should be a cap of nine thousand nine thirty two social security that can be assigned to one social security number and we paid minus eleven seven eighty so now we have kind of an issue with an overpayment to social security because of big beat because of the two w twos that are adding together and didn't know about the cap being hit because the other one was at the other employment so we could say it like you'll see that you'll say it like the software will catch that usually because you'll do the data input that's why you want to make sure that you input the social security even though it might not be something you see see if i got a page two i'm like okay everything looks no way what is this what is this that looks funny it's not in my worksheet over here and then i'd go okay that's coming from schedule three their schedule three at that why is that there that just popped up out of nowhere and then we're going to go all right on page two schedule three excess social security oh they paid excess why because there's two w twos and therefore this this amount was overpaid into the social security because they went over that cap now you have to also be careful when you have a married couple to assign the social security to the proper number because the social security although they're married the social security is a tie is tied to one person at a time so maybe we'll take a look at that but before we do let's go back on over and say all right let's i see that let's go back and get rid of the second one and sales delete this one and let's do the second the next scenario where we say uh... let's do this one let's just do this one so we have one seventy thousand but then the social security are are different because now they hit the cap on one w two form and then the medicare wages are different so okay so so if we see that we're going to go okay the w two was that wages uh... what what what was it again one seventy thousand one seventy thousand and then the withholdings were at the forty two five box two forty two five that always has to be input now it's trying to guess that this one is correct they got it right how to get it right because it's capped so it's all that one's at one seventy this one has to be capped at one sixty thousand two hundred so we got it right that time and then if i multiply that times point oh six two one hundred sixty two hundred times point oh six two that's got that right so nine nine three two that's where this number comes from and then we have the one eighty thousand one hundred eighty thousand it tried to guess the medicare wages now the medicare wages are wrong so i have to do the data input how did it get it wrong well it tried to pull in the medicare wages from this one seventy because it's not subject to the cap however it's possibly this this wages got decreased how why is that one different well because we had in this case a a contribution to a retirement we're gonna imagine that went to a retirement account so the retirement account box is checked off so i'm gonna go in and say okay now if i looked on my instructions i think that should be in boxed i'm gonna imagine that was in box twelve here and then and i go all my instructions had a d in it let's say so elective deferrals two a four one k cash or deferred agreement so we're gonna say okay so let's go back on over is there spot in my data input to put that in here well here's box twelve and i've get this nice drop down i'm gonna say it's an elective deferral of ten thousand dollars ten thousand and then i can go back on over and say okay k posse what happened there's the one seventy thousand so obviously we're gonna pay federal income taxes on the on box one so i'm gonna put this one job two is gone rat one seventy thousand and the withholdings then the second one is gone the withholdings are now at what did i say forty two five uh... forty two five do it and then if i go back on over standard deduction still at the thirteen eight fifty that brings us to taxable income one fifty six one fifty so we're gonna go okay one fifty six one fifty page number two calculated the tax at thirty thousand eight seventy six so i'll plug that in here thirty thousand eight seventy six and we have the payments at forty two five okay so bottom line eleven thousand six twenty four on the refund so so so so there so there is that one so like i say you might not always have an impact of of uh... the social security tax and medicare tax but it's possible you could if there's multiple w two's and if you explain this to a client you might have to explain why these three boxes which all indicate wages are different and you might help them to kind of understand what their total compensation really is which is generally closer to box five the medicare wages because it's not being reduced by the by the amount that was put into the uh... taxes for example i mean the 401k plan is what i meant to say for example okay so that's so so that you can you can look at for example this forum to see it some of these other uh... other things you can find in box twelve and then basically do more research on each of these items and and then drill down on that research if you wanted to but for now let's also just look at a married couple just to take a look at that scenario let's bring it back to our original scenario where it was one hundred thousand and we're gonna say the withholding let's just remove the withholdings to start with and one hundred thousand here and medicare as that one hundred thousand as well to do one hundred thousand so now we're back to then our to do to do one hundred thousand thirteen thousand eight fifty eighty six one fifty so i'm gonna say okay one hundred thousand to do it to our starting point and thirteen eight fifty and eighty six one fifty eighty six one fifty page to calculate in the tax fourteen two sixty six we're gonna say okay tax one four two six six and i'm gonna get rid of the payments for now and so that's where that's going to be our starting point so now let's say they get married so now we've get married so we're gonna say okay so let's go on over and say single married now so if we just move it to married and we keep it the same we can see what has happened now we've got two individuals filing status married filing jointly same one hundred thousand i haven't added another w two or anything that gets us to the uh... standard deduction at twenty seven seven hundred i can mirror that over here by saying now the standard deduction is for a married couple and so that is that that gets us to the seventy two three hundred on the bottom line page to calculate in the tax eighty two three nine so we're gonna say that eight two three nine and so that gives us then the and i didn't withhold anything so there it there that is okay so now let's say that we had another double you two so if i go back on over and this is something to that's important if i say okay another double you two and and i did let's say i don't mark the spouse that it's going to by the way this retirement plan if i check that checkbox would be important if there was a retirement plan on the checkbox so that your software will indicate that that you know that is there to do any kind of cap calculations on the retirement plan okay let's say the second one was eighty thousand and i'm not going to do i won't do the withholdings i'll just keep it here so it calculated the eighty thousand the social security and the medicare properly but if i didn't check off that it went to the spouse then now i have a hundred and eighty thousand that the software might try to apply to one taxpayer which means again i went over the cap for the social security so if i go back on over and i was to look at this i can go okay let's take a look at we've got the one hundred and eighty thousand twenty uh... twenty seven seven if i go to page two uh... notice here once again it did this thing on on schedule three and if i look at it i'm gonna go man what it is what why did it do that and it's because that i didn't apply the social security to the spouse right if i go back on over and i say okay this was the spouses w two now the one eighty isn't going over the cap because note the social security is applied to each social security number not to the tax person itself in other words when someone is single they're their own entity when they get together they have united body soul and and uh... tax return altogether uh... for federal income taxes for the most part uh... for social security they're still separate for each number because the social security benefits are going to be paid out based on social security number not filing status so therefore this that becomes very important so i can say okay and if you do your double checking over here in excel you'll see that right then when you if a mistake like that happens now i can go okay so i double-checked it so there's a one eighty so there's the twenty seven seven form three is now gone there's uh... the tax on it and i don't have that social security thing kind of popping up there it's going to be important to assign the social security we'll talk more about social security later but it's important to assign the proper social security to the proper person it's not going to have an impact possibly on the federal income taxes but it could and that social security type of situation and it's also something that you might get questions about with regards to people trying to maximize their social security benefits so that they get the when they get paid out in retirement it's properly allocated and will get into problems and issues with that when we get into self employment tax for example uh... on a schedule c like who's going to who who should be allocated the schedule c now also just realize with this married couple that we we have to assign someone on line one and line two right and so in that typically you're going to put that the man on line one and the woman on line two but you have to is you could be so you have to do it that way because the software is going to say this person is the is the taxpayer in the other ones going to be the spouse so that they can assign the two line items so so so when you do the data input for most tax returns that's going to be the language that's going to be used right so if i'm gonna say spouse that's the person that's on line two of the tax return typically a wife in a married couple situation so that's the general uh... scenario and like i say if you if you uh... have something that's that's somewhat unusual on the w two typically you can have a data input place for it uh... if it's on the w two in your data input form for your software and you can also go to the instructions and basically look at the letters for the line items that might be included for example in box twelve and then from there you can further do your research to make sure that you're properly reporting anything that's somewhat more unusual on uh... the w two form and some of those topics will talk more about in future presentations