 Income tax 2021-2022. Wages, salaries, tips, etc. Get ready to get refunds to the max diving into income tax 2021-2022. Within the income tax formula we're up top on the first line that being the income line which can look deceptively simple because it's just that one line but there's a lot of things that can be included in it. You want to be expanding or thinking about this kind of like as the summary sheet of an Excel worksheet. The other sheets feeding into this summary sheet in some way or the 10-40 in essence being a summary sheet, other sheets, other schedules, other forms feeding into it schedules such as on the income line for example the schedule one, schedule C, schedule D, and so on and so forth. We're now looking at the W-2 income most likely the most common type of form we think of with regards to tax forms to report the income. This being an employee-employer type of situation the employee-er being required to do withholdings as well as send out the form W-2 both to the employee and to the IRS. So this kind of form is something that the IRS already has if there's an error on it or something like that then what you need to do is basically go to your employer get it fixed because if you don't if you report something different even if it's correct on your taxes and it doesn't tie in to the W-2 form the IRS doesn't even need like an actual person to figure out that difference or discrepancy the machine can basically see that those two things do not line up their system can and you will almost surely get some kind of letter saying hey there's something that doesn't report properly and it could basically delay your return and so on and so forth. Also note that when you're talking about an employer employee type of situation that is a situation where typically the government has the most leverage on the pay-er in this case the employee-er to not only report the income that's being earned by the employee but also mandating that they themselves act as the tax agents you know a collection tax collection agency that's so that's what the employee-ers are doing when they withhold the money so they're withholding money out from the wages that means they're basically being the tax collector for the government taking the money from the employees to pay it directly to the government as they're mandated to do that then also needs to be reported on the W-2. So W-2s can be kind of actually quite complex when you're thinking about all the different things that are going to be involved in it. Let's just go through it real quickly here we've got the employer identification number we've got the employer's name address and zip code we've got the control number the employees first name and initial last name and then we've got the boxes over here box one wages tips other compensation and then box two the federal income tax withheld now this when you're looking at these boxes up top you're often looking at these people say well that represents basically the total income that I've earned and that might be the case but it's not necessarily the case because remember this box one is taken into consideration the taxable income so if you've got benefits from your employer error that are not taxable possibly like a 401k plan or sometimes some kind of like health insurance possibly a situation that is not taxable it's not going to be included in box one which can lead to a lot of kind of confusing because people are trying to verify how much they're actually earning and when they look at the actual W-2 you could actually be earning a lot more than it's being put in basically box one because you're getting benefits that are not included in the taxable items and sometimes you could see them down below which you'll see that the withholdings that were taken out for your benefits for putting it into like a 401k plan or something like that so then we've got box three social security wages this is also a wages type of box here so you might say why do I need one and three if we're reporting wages in both boxes those might be the same sometimes but they could differ because it's possibly the wages related to social security will be different than the wages related to the federal income tax for example there's a cap on social security so if you make over a certain amount then you might have a cap on the maximum amount of social security that you're going to be paying and then the social security tax withheld this is often confusing because what a lot of people when they're doing tax preparation they're the only tax in your mind is federal income tax that's the primary tax that we're dealing with so they're we're not really thinking social security tax oftentimes but we are reporting the social security tax the reason normally with a W-2 type of income we don't have to think about it as much as because it's more just an informational type of thing in other words the social security tax is working like we would like the income tax is kind of designed to work which is that we're going to actually pay the tax throughout the year and then when we file the actual tax form in the following year in this case by April 18th of 2022 it should just be a reporting requirement we should be able to say hey look this is how much I owe this is me recalculating the tax this is how much I paid I paid exactly how much I owe I therefore have no need for a refund or for to pay any more the income tax is way too complex to do that that's why we overpay the tax or shoot to overpay the tax and then get a refund not because we like getting a refund but because we're trying to avoid penalties and interest the social security is more of a flat tax so in that case you can basically pay throughout the year know what you're going to be paying because you don't have progressive tax systems you're not taken into consideration all these other deductions and credits and so many things so that means that it's really just a reporting requirement for the most part so oftentimes when you're doing the tax preparation you don't even really think about this kind of information you're putting into the system but you're putting it into the system and it can have impacts sometimes oftentimes when you're talking about a self-employed individual that's when it comes into play because then you're talking about self-employment tax which is the Social Security and Medicare we'll talk more about that later then we've got the medical wages and tips so now we've got a third wages box so now we've got box one federal in federal wages box three Social Security then Medicare wages so these are the wages that you're going to calculate your tax for Medicare on and and this one it could be different than the federal income tax box and it could be different than the Social Security and actually this one is usually the one that's most close to the actual benefits that you that you have received because there's no cap on it so even if your income goes above a certain level it will typically still be increasing and you may not have some of the kind of things that were reduced or deducted from it that you might have in box one so when you're thinking about what your actual true income is and you're trying to draw that from the W2 that the box five often might be the highest income line item and close to the actual income that you earned and then we've got the Medicare tax withheld like the Social Security this is in essence a payroll tax and basically we we put it into the system but we're usually not thinking about it unless we have the same kind of thing with self employment tax or something it's just a reporting requirement and it's not because we're focused on the on the income tax not so much on the Social Security and Medicare because it's just a reporting requirement typically here and then we got the Social Security tips if applicable allocated tips if applicable dependent care benefits and then we've got the non qualified plans if applicable now all of this other stuff you can find the instructions for this typically on the instructions to the W2 and if they're not given to you or you don't have them with the W2 form you can look in the IRS website irs.gov and take a look at some of the more detailed statutory employee retirement plan if that's checked off then you should have a retirement third party sick pay if been if needed and then box 12 a or other kind of instructions that would be involved here typically gonna have a letter and then the the instructions for the information regarding that particular letter that again when you see those letters you want to go to the instructions to the form 1040 to get some more information about what they mean so we'll take a look at some examples and some data input for the W2 and future presentations with the tax offer but for now let's just get into some more detail on it the wages salaries tips etc enter the total of your wages salaries tips etc if a joint return also includes your spouse's income for most people the amount to enter on this line should be shown in box one their form 10 their forms W2 but the following types of income must also be included in total on line one so we're talking basically the line item line one for your income typically is going to be your W2 type of income and you might have multiple basically W2's multiple jobs for yourself for example and possibly if you're reporting someone else on the return most likely married filing joint you could have other income there so it's not just necessary one W2 income all wages received as a household employee and employer is it required to provide a form W2 if he or she paid you wages of less than 2,300 in 2021 so that's an instance where you don't it's under the requirement to have a W2 but you'd still need to report the income there if you received wages as a household employee and you don't receive a form W2 because an employer paid you less than 2,300 2,021 enter HSH and the amount not reported to you on on a form W2 in the space to the left of line one for information on employment taxes for household employees you can see tax topic 756 you can find on the IRS website any Medicaid waiver payments you received that you choose to include and earn income for purposes of claiming a credit or other tax benefit even if you don't receive a form W2 reporting these payments so why would that be the case possibly you want the earned income in that case because it maybe it has an impact on like an earned income tax credit which could actually go up as your earned income goes up so earned income could actually be good in a benefit program situation so that gets a little bit in the weeds a little bit but in any case you could see instructions for schedule one line eight Z for more information on that tip income you didn't report to your employers now you got the tips the tips is off always another area where the IRS has been skeptical because you typically get tips oftentimes they used to be in cash which is something that the IRS doesn't like either because it's hard to track cash you know so you got the tip reporting requirements and so and obviously if you worked at a restaurant and so on you you might have different rules in terms of how to report the tips and what the tips are going to look like what the employer needs to do to report the income on the tips and so on and so forth so this should include any allocated tips shown in box eight on your forms W2 unless you can prove yet that your unreported tips are less than the amount in box eight allocated tips aren't included in income in box one you can see publication 531 for more details also include the value of any non cash tips you received such as tickets passes or other items of value so common question people have is they say well if I don't want to pay taxes maybe I'll just give someone money that's that's non tip in other words normally when you're looking at an income tax as an employer or as someone that has a business negotiation with somebody else if I can if both sides would benefit if they can remove the taxation obviously because then the person can get services for less and the money would go further and the person receiving the money wouldn't have to pay income taxes so often people say well how about I just I give money or instead of money I give something else I'll give you season tickets to whatever this to that that now you got of these gifts that are going in place but obviously the gifts those kind of gifts are a form of compensation and they should be reported as income income as well so even though they're not tax related although you don't report these non cash tips to your employer you must report them on line one so dependent care benefits which should be shown in box 10 of your forms W2 but first complete form 2441 to see if you can exclude part or all of the benefits so you can see the instructions for form 2441 for more information employer provided adoption benefits which should be showing in box 12 so if this is applicable you see it basically in box 12 of the 1040 of the W2 we looked at it has a code T so again if you saw something like a code T in box 12 then you'd want to go to the instructions and say okay what is that and then what do I need to do with regards to it but see the instructions for form 8839 to find out if you can exclude part or all of the benefits you may also be able to exclude amounts if you adopted a child with special needs and the adoption became final in 2021 scholarship and fellowship grants not reported on form W2 also enter SCH and the amount on the dotted line next to line one however if you were a degree candidate include include on line one only of amounts you use for expenses other than tuition and course related expenses for example amounts used for room board and travel must be reported in line one excess election deferrals the amount deferred should be shown in box 12 of your form W2 and the retirement plan box in box 13 it should be checked so once again if you see something in box 12 there you're going to look at it you're going to see the code that's going to be indicated for it you're going to look at the instructions and say is there anything I need to do that's going to be special with relation to that box and you want to be able to understand those typical kind of things like a retirement plan so that you can explain that to the employee or to the client because the clients are often you know may not have a the idea of how much they actually earned even because the W2 isn't actually that clear on what their earnings were you know and then how that how those different boxes the different three different wage boxes 1 3 5 interact with the box 12 a so we'll look at a few more examples to get a little bit more detail on that in the example problem so if the total amount you or your spouse is filling is filing jointly deferred for 2021 under all plans was more than nineteen thousand five hundred excluding catch up contributions as explained later include the excess on line one so typically that's not going to be the case because you'll max out you know you'll max out the withholdings but it could be the case that you have multiple you know well you could go over the amount that you're going to be able to exclude and so on this should be something that should be reported on your W2 but if you have multiple employers for example then it's possible that that situation gets a little bit more messy because you know you could go over the threshold any case this limit is a thirteen five hundred if you have only simple plans or be twenty two thousand five hundred for section four or three B plans if you qualify for the fifteen year rule and publication five seven one so in other words note that if you're working somewhere the retirement plans however whichever retirement you have type of plan for a three B typically for and our government entity or a simple plan is typically for smaller kind of business a 401k possibly there's going to be limits in terms of how much you can put into the plan it's one of the biggest benefits an employer can give but of course in order to take advantage of it you need money so that you can put it in to the to the plan and get the deferral on it and they're always adjusting these limits so the question is did you max out get to the max of these limits and did you go over the max of the limits and then what are you going to do in the event that you put more in over the max of the limit so although designated Roth contributions are subject to this limit don't include the excess attribute attributable to such contributions online one so Roth irons are going to be the types of irons we'll talk about them I believe in a future presentation but there those are the ones where you don't get the tax benefit basically up front you kind of pay the taxes up front and then you get the benefit you know later went by from the earnings and then you then you could take the money out without paying taxes at that point so it's kind of like the reverse of a normal a normal retirement plan which is like a like an IRA or in this case work related items 401k 403 b the simple and so on so they are already included as income in box one on your form to w2 so that should be all taken care of for you if you're the tax preparer by the person that did the w2 hopefully but you might have to explain that say to a client if they have questions about it wages salaries and tips a higher limit may apply to participants in section four seven four five seven b deferral compensation plans for the three years before retirement age contact your plan administrator for more information if you were age 50 or older at the end of 2021 your employer may have an allowed and additional deferral catch-up contributions of up to 6500 3000 for section 401k 11 and simple plans this additional deferral amount isn't subject to the overall limit on elective deferrals disability pensions showing on form 1099 or if you haven't reached the minimum retirement age set by your employer but see insurance premiums for retired public safety officers in the instructions for lines 5a and 5b disability pensions received after you reach the minimum retirement age and other payments shown on form 1099 are other than payments from an ira are reported on line 5a and 5b payments from an ira are reported on lines 4a and 4b so a lot of the stuff hopefully will be basically on the w2 if they filled out the w2 properly then your job is hopefully to interpret the w2 and be able to do the data input and explain kind of what the different boxes are going to be meeting with the help and aid usually of the instructions for the w2 corrective distributions from a retirement plan showing on form 1099 are of excess elective deferrals and excess contribution plus earnings but don't include distributions from an ira on line one instead report distributions from an ira on lines 4a and 4b and then wages from the 8919 we'll talk about distributions from an ira you know that's another kind of format of income you might have so wages from form 8919 line six were you a statutory employee if you were a statutory employee quote statutory employee in quote box in line 13 of your form w2 should be checked so you'll see that box checked off and then again you can take a look at the instructions on the w2 to get some more information related to it statutory employees include full time life insurance salespeople and certain agent or commission drivers certain traveling salespeople and certain home workers statutory employees report the amount shown in box one of form w2 on schedule c along with any related business expenses so statutory employee you've got the w2 they're going to be a statutory employee so you would think i would need to report report it on box one but these are kind of those types of businesses where there's a question are they a contractor or they an employee and so you may be able to report them on a schedule c which we'll talk about later which is going to be the business type of income because on the schedule c you've got in essence an income statement with the income and then the related expenses that they would be able to take in that instance possibly which would be a benefit to them so missing or incorrect form w2 your employer is required to provide or send form w2 to you no later than january 31st 2021 if you don't receive it by early february use tax topic 154 to find out what to do even if you don't get a form w2 you must still report your earnings online one if you lose your form w2 or it is incorrect ask your employer for a new one so if you don't have your w2 you got to go back to the employer if it's incorrect you got to go to the employer to fix it because if you just file out you still want to file the proper numbers but if they don't fix it and send it to the iris then the iris is going to have a problem because it's not going to line up to the w2 that they have and then you're going to have to you know that could delay any refund and so on and so forth so if there's any problems with the w2 you would like to go back to the employer and get that fixed