Tag: W2

Posted on by Jan Roberg

IRS Letters – the CP 2000: Common Errors and How to Fix Them

Photo by 401(K) 2012 at Flickr.com

 

Have you gotten a letter from the IRS that says something like this?

 

“The income and payment information we have on file from sources such as employers or financial institutions doesn’t match the information you reported on your tax return.  If our information is correct, you will owe…”


That letter is called a CP2000—it’s from the Individual Automated Under Reporter Unit of the IRS.   In 2012, they issued 4.5 million notices with an average of $1,572 in additional taxes owed.  That’s over $7 billion dollars!

 

Just because you receive one of these CP2000 letters, doesn’t necessarily mean that you owe the IRS any money.  So before you go writing the IRS a check, you need to take a look at your tax return and the CP2000 letter very carefully to make sure you owe before you pay.  Let’s take a look at some of the most common things the IRS is asking about.

 

Missing W2:  You’d be surprised how many people forget a W2 off of their tax return.  It’s easier than you’d think.   You could have a Christmas season sales job at Macy’s in 2011 but get a pay check for one day in January 2012.   When you file that 2012 tax return in 2013, you’ve forgotten about that one paycheck.  If you moved during the year, you might never get your W2.  If you forgot a W2 on your tax return, usually it’s just best to sign the letter and pay the tax.

 

Missing stock trades:  This is probably the most common type of CP2000 letter that I see and they fall into two categories.  The first is employee stock options.  If you work for a company that issues employee stock options, when you exercise those options, you pay the tax through your payroll withholding.   Even though the stock options are accounted for in your paycheck, you still have to do additional paperwork on your taxes. If you don’t also report the employee stock options on a Schedule D, you’ll get an IRS notice.  Usually, if this is what happened, you won’t owe any additional tax, you just need to submit the missing paperwork.

 

The other category of missing stock options consists of trades that just weren’t reported.   Many people who made the election to receive their brokerage notices online didn’t realize that their 1099B notices were online also.  I think that’s one of the most common reasons I’ve heard for people not reporting their trades.  If you fall into this category, remember that the IRS doesn’t always include stock basis when they figure your tax.   If you have stock trades on your CP2000, you’ll need to prepare an amended return and be sure to include the basis of all our stock trades.  You may still owe the IRS money, but I’ve never seen one of these cases where the person owed the IRS the full amount that the IRS stated.

 

Mismatched documents:  This happens all the time.  For example, let’s say that you have three accounts at Bank of America.  One earned $10 interest, another earned $15, and the other earned $20 of interest.  You put $45 of interest down on your tax return.  And that’s right.  But the IRS may get the documents as 10; 15; and 20 and since it’s a computer and not a human that does the matching, you could get a notice saying you didn’t report your interest properly.  You can usually solve issues like that with a simple phone call.

 

These are just a few of the more common and easy ways to solve CP2000 issues.  If you receive a CP2000 letter and it doesn’t make any sense, or you just need some help, please call us.  That’s what we do.

 

Check out the IRS link as well: http://www.irs.gov/Individuals/Understanding-Your-CP2000-Notice

Posted on by Jan Roberg

Claiming Exemptions—the W-4 for Dummies

w4 for dummies

NOTE FOR 2018:   The Tax Cuts and Jobs Act that was recently passed by Congress is going to change the IRS withholding tables and how we fill out W4s.  Right now, we are still waiting for the IRS to supply the new withholding tables and create the new W4s.  This post is about the old W4.  I will be updating this as soon as I have new information.  But right now, the information below is for 2017 and earlier.  I do not expect the new information to be available until mid February.

-Jan

 

 

I’ve been getting a lot of questions about how many exemptions to claim on the W-4 (Employee’s Withholding Allowance Certificate) form that you give to your employer.  People look at the whole 2 page form and get intimidated.  For most people—you should just ignore the rest and concentrate on the little part at the bottom of page one.  That’s the part in this screen shot up above.   It will make your life a whole lot easier.

 

First, some questions:

 

I claimed the wrong number of exemptions on my W-4 and now its tax time and I’m going to claim a different number of exemptions.  Will I get in trouble for this?


No you won’t.  Your employer doesn’t report you to the IRS for not claiming the right amount of allowances.  The worst that will happen is that you owe a lot at tax time or get a big refund.  (Actually I don’t think of getting a big refund as being a bad thing.  Probably shouldn’t call it a “worst case scenario.”)  Neither of those things are crimes.  It’s possible that the IRS could inform your employer to increase your withholding if the withholding on your W2 is not enough to cover your tax liability.  I have never seen that happen to anyone—but the IRS is allowed to do that if they think it’s necessary.

 

I don’t want any tax taken out of my paycheck.  Can I just claim EXEMPT?

 

No you can’t.  Exempt is only for people who will have no tax liability at all.  You might have gotten a refund last year, but it doesn’t mean you have no tax liability.  Generally, someone with no tax liability makes less than $5,950 for the entire year.    For most people, claiming EXEMPT is a really bad idea.

 

Okay, so what should I claim? Good question.  Here’s my suggestion list.  See what category fits your best.

 

You are a student, either in high school or in college.  You’re not married and you don’t have kids.  Your parents are allowed to claim you on their tax return (you’re under 24 years old.)  SINGLE, ZERO ALLOWANCES


You’ve got a job, only one job, you’re living on your own, and you’re single.  SINGLE, ONE ALLOWANCE


Now if you have a child, add another allowance for each child.  For example, let’s say you’re single with 2 kids, you’d claim single 3 allowances; one allowance for you and one for each of the children.

 

Single like above but you’re working two different jobs, SINGLE, ZERO ALLOWANCES – because the two jobs kick you into a higher tax bracket than the withholding would show.

 

You’re married and only one person works:  MARRIED, TWO ALLOWANCES


You’re married and you both work—you’ll each have your own W-4 and they will be different

 

Spouse #1 with higher paying job—claim MARRIED and all the allowances for the family

 

Spouse #2 with the lower paying job—claim MARRIED BUT WITHHOLD AT HIGHER SINGLE RATE, ZERO ALLOWANCES


Now this is a pretty simplified guide, but it’s much easier to understand than what is on the form.  I also find that people are less likely to get into tax trouble with my rules than when you follow the allowances worksheet.

 

If you want a really good, accurate calculator to figure your proper withholding, the IRS has one on their website.  The problem is, as I’m posting this—the calculator is down.    You can use this guide for now and you can always tweak your withholding later when it’s back up.  Here’s the link:  http://www.irs.gov/Individuals/IRS-Withholding-Calculator

Posted on by Jan Roberg

What All Those Boxes on Your W2 Mean

Income and Taxes

Photo from 401Kcalculator.org via flickr.com

Did you get your W2 from your job and it looks like some foreign language? All the little boxes have some letter or number attached, but what does it all mean? Let me walk you through it.

The two most important parts are: ‘How much did you make?’ and ‘How much tax did Uncle Sam take out?’

Box 1: Wages, tips and other compensation. That’s how much you made; it’s going to go on line 7 of your 1040 or 1040A federal income tax return (line 1 on the 1040EZ).

Box 2: Federal income tax withheld. That’s the tax you paid. It goes on line 62 of the 1040 (line 7 on the EZ and line 36 on the 1040A).

The other numbers aren’t quite so important, but if you’re curious, I’ll explain the rest for you just so you know.

Box a: Employee’s social security number. That’s your social security number. If you don’t have a social security number, they’ll use your ITIN number. It’s important that your social security number is listed correctly. If there’s a mistake here, you should ask your employer for a corrected W2.

Box b: Employer identification number (EIN). That’s the ID number for the company you work for. It’s kind of like a business social security number. If you’re preparing your own tax return online, you’ll have to type that in correctly. A mistake here will get your tax return rejected.

Box c: Employer’s name, address, and ZIP code. Although this seems pretty obvious, this can really confuse people. Let’s say you work at a McDonald’s in St. Louis but when you get your W2, it says you work for Fred Jones LLC with an address in Kansas. A lot of times companies have their “legal” names, and their “doing business as” names. Usually, it will say the DBA name also, but not everyone does that. Don’t die of shock if you see a funky name, it’s pretty normal and legal.

Box d: Control number. Often, that’s blank. If there is something there, you don’t have to worry about it. That’s more of a code for bookkeeping purposes. I have one employee and I had to give him a code for my payroll program. I didn’t know what to do; 7-11 was the first thing that popped into my head (because I had stopped for a Slurpee.) Hopefully, if you have a control number, more thinking went into it than with my company.

Box e: That’s your name. Check, make sure you got the right W2. I was just working on a tax return and the person had been given someone else’s W2. Weird stuff happens.

Box f: That’s your address. If it’s wrong, you can hand write the correct address. Unlike an incorrect social security number which really needs to be fixed by your employer, an incorrect address is not that big of a deal.

We’ve already talked about boxes 1 and 2 being wages and federal income tax withholding. Now let’s talk about those other numbers.

Box 3: Social security wages. Usually, this will match box 1. There are a couple of things that will make those boxes not match.

  1. You’ve made contributions to a 401(k) or 403(b) retirement plan. You’ll know if you did that by looking at box 12 and finding a code D there. Generally, if you take the amount of money in box 12 and add it to box one, you’ll get box 3.
  2. If you made over $106,800 your box 1 and box 3 numbers will also be different. It’s called the “wage base limit.” Basically, once your income goes over $106,800 you don’t pay any more social security tax. So the number in box 3 won’t go over $106,800. If you had two jobs and your combined income goes over that number, you can get a refund of your excess social security withholding.

Box 4: Social security tax withheld: For 2011 that number is .042 times whatever is in box 3 – plain math. If you have something in box 7 (tips) then it should be .042 times the wages plus the tips.

Box 5: Medicare wages and tips: Usually, this matches box 3. If you earned tips, that gets added in; also if you took money out for retirement, that’s added in too. Also, there’s no cap on the amount of money you pay medicare tax on, so if you made over $106,800 then you pay tax on your entire wage.

Box 6: Medicare tax withheld: plain math, .0145 times whatever is in box 5.

Box 7: Social security tips: unless you’re wait-staff at a restaurant, you probably will have nothing listed there. This box is for tips you reported to your employer. Usually, it’s the tips that you got on credit card receipts.

Box 8: Allocated tips: This is one to watch out for. Once again, for most people, it’s blank. If you work in a restaurant and you have a number in this box you want to look hard at this number. That means that your boss decided that you didn’t report enough tips and so he “allocated” tip money to you. You have to pay tax on that. Now if you really did earn that in tips, then it’s no problem. But if you’re working at a place with lousy tips and there’s a big number in box 8, you’ve got some issues. The only way to fight this is to keep a really good log of your tip income. Most people don’t keep a log, and then when they get the “allocated tip” item on their W2 it’s too late.

Box 9: Nothing’s there.

Box 10: Dependent care benefits: That’s for when your company pays for your day care. If there’s something in this box, your tax return must have a form 2441 for child care expenses attached to it.

Box 11: Non-qualified plans. For most people this is blank. A non-qualified plan is retirement money that you don’t get to deduct.

Box 12: This is where all the extra goodies go. It could be a whole other blog post. Bottom line, the most common item is coded D or E for retirement funds. For the full list, you can look at the IRS website: http://www.irs.gov/pub/irs-pdf/fw2.pdf. It starts on page 7 and finishes on page 9. Some of those codes require you to file extra forms—for example a code V means you must file a Schedule D (employee stock options) and a code L means you must file a form 2106 (employee business expenses.) If you’re seeing codes in box 12, it’s at least worth a phone call to a professional just to double check what you need.

Box 13: Those are check boxes for statutory employee (means you’ll need a schedule C), retirement plan (which may limit how much you can contribute to an IRA), and third-party sick pay.

Box 14: Other. Usually that’s blank. Sometimes it lists things like union dues or United Way contributions. A lot of times I find the stuff that should have gone into box 12 in box 14, so always look at it if there are numbers in there.

Boxes 15 and up contain your state and local income tax information. 15 has the state and the employer’s state ID number. That’s important to have if you’re e-filing your return.

Box 16: State wages. This usually matches box 1, the federal.

Box 17: State income tax withholding. You’ll need this information to file your state tax return.
If you live or work in an area with a local tax, like St. Louis City, your local tax information will also be listed.

And that’s what’s in your W2.

Posted on by Jan Roberg

What To Do If You Don’t Have Your W2

It’s important to have your W2s before you try to file your income tax return.  If you take your taxes to a professional, it’s against the law for us to file a return without having a copy of your W2 in our files.  So what do you do if you don’t have yours yet?

Well first, your employer has until January 31st to send your W2 out.  By now, you really should have it.  If it’s still missing, here’s what you need to do:

Call your employer.  That’s the easiest solution.  Give them a reasonable amount of time for it to arrive in the mail, but usually that will take care of the problem.  It doesn’t matter if he doesn’t like you or you left under bad circumstances, he has to give it to you—it’s the law.

 If calling your employer doesn’t help, and you have not received your W2 by February 14th, then you need to call the IRS.  You’ll be calling the main line at 1 800 829-1040.  They’re going to ask a lot of questions so be prepared to give them your name, address, city and state, zip code, social security number, and phone number.  Then, you’re also going to give them your employer’s name, address, city and state, zip code and phone number.  Plus, you’re going to need to give them your dates of employment, an estimate of the wages you earned, the federal income tax that was withheld, and when you worked for that employer during 2010.  Basically, you’re going to get that information off of your final pay stub.  The numbers are going to be off of the “year to date” column.

 After you’ve done steps one and two, then you can file your tax return.  You’re going to use a form called a 4852.  It works as a substitute for your W2.  All the information that you called in to the IRS, is going to go on the form 4852 again.  Warning -your refund will probably be delayed until the IRS can verify the payroll information provided.  (This is why it’s so important to try to get the W2 from your employer first.  If you’re getting a refund you don’t want it to be delayed.)

 Sometimes, people receive the missing W2 after they’ve filed the form 4852 and the information is different.  If that happens to you, you need to file an amended return (form 1040X.)    This doesn’t happen all the time, I just mention it so that you know in case it does happen to you.

 One thing that’s important to remember is that you are supposed to report all of your income, even if you didn’t receive your W2.  You can’t just take a late W2 and put it on next year’s taxes.  It can get you into trouble if you try that so please don’t.  Also, you might not receive your W2, but the IRS probably did.  If you file a return without your missing W2, but the IRS does get the W2, then you could get a nasty little letter from them about why didn’t you report all of your income?  And what’s even worse, in my opinion, is if filing the W2 would have gotten you a bigger refund.  The IRS usually doesn’t bother you if they owe you; it’s usually the other way around.  So be sure to have all of your paperwork before you file, you don’t want to miss a thing.