W-2 Form

This year you may find something different on your form. The new health care legislation, the Affordable Care Act, requires employers to report the cost of your employee coverage under your employer-sponsored group health care plan on the W-2 they issue to you. Though optional for 2011 W-2s, these reporting requirements will become mandatory for employers with 250 employees or more in 2012 and become mandatory for all employers beginning with 2013 W-2s.

You’ll find such benefits reported in Box 12 of the Form W-2, identified by the Code DD. If you see health care insurance costs reported on your W-2 this year, don’t panic. Just because the information appears on your W-2 doesn’t mean it is taxable to you. These benefits have always been tax-free, and still remain tax-free under the health care legislation. The information is there so you can better understand the cost of the health insurance benefit you receive through your employment.

The health care coverage costs reported to you will not include the cost of long-term care coverage, accident or disability income insurance, liability insurance, worker’s compensation benefits, or other plans for which medical care benefits are incidental to other benefits. If your dental and vision coverage is under a stand-alone plan not connected to the major medical plan, those costs are also excluded from reporting.

Here are some more tips for reviewing your W-2:

• Notify your employer if your social security number is wrong in Block A, and ask your employer to issue you a corrected form. Don’t try to change it yourself – your employer must send a correct copy to the government for the change to be effective.

•  Compare the figures in Boxes 1 (federal wages), 2 (federal income tax withheld), 16 (state wages) and 17 (state income tax withheld) to the figures on your final paycheck. Don’t assume your W-2 is correct – employers can make mistakes.

•  If your employer paid for your moving costs during the year, review  Box 1 to see if those payments are included there. If your employer included your moving expense reimbursement in income, be sure and claim your moving deduction on your tax return. Skip this step and you’ll be overpaying your income taxes by missing an important deduction.  TurboTax will guide you through deducting these expenses.

• Check the figure in Box 4 if you made more than $106,800 in 2011.  This is especially important if you had more than one employer in 2011. The maximum social security that should have been withheld from your paycheck in 2011 is $4,485.60 (4.2% times $106,800).  If more than that was taken out for Social Security taxes from your combined employers, you may claim the excess withholding as a credit on your income tax return.

• Read Box 13 to see if “statutory employee” is checked. If it is, you must report your wages for this W-2 on Schedule C of your Form 1040.

• If you didn’t receive your W-2 form by mid-February, contact your employer. If the employer refuses to provide the W-2 to you, contact the IRS at 1-800-829-1040 with the employers name, address, telephone number and employer ID number, if you know it. If you still can’t get a W-2 form, file Substitute W-2 Form, based on your final pay stub from that employer for 2011.

Knowing how to read a Form W-2 can help you understand your salary, and also help you get a head-start when preparing your taxes.

Here’s what to do now:

Folders, Folders, Folders!

As all of your forms start to trickle in (they must be mailed to you by January 31 so be on the lookout!), you need to have a record keeping system in place. Specifically, a filing system, and for many of this, that means FOLDERS! Set up different folders for each of the following: INCOME (This folder should include things like your W2’s from all your employers and any interest or dividend income from investments -1099-DIV or 1099-INT), DEDUCTIONS (This folder should include all of your deductions for property taxes, charitable giving and mortgage interest), and RECEIPTS (This folder should include all receipts eligible for deductions). You could even have a separate folder labeled HOMEOWNER for things like your mortgage interest form (Form 1098), and sale of your home (Form 1099-S) as well as a MISCELLANEOUS folder for things like your tuition statement (Form 1098-T), and state and local income tax refunds (Form 1099-G).

Review all your tax documents

Just because you have your filing system established doesn’t mean you should simply throw your forms into the folders and forget about it.  Review each document as it comes in.  Is everything correct? Any discrepancies? Know that getting a corrected 1099 or W-2 can take a while, so don’t delay if there are errors.

Take advantage of all credits and deductions

Chances are, you’re confused. After all, the last-minute compromise in the umpteenth hour to extend the Bush tax cuts included a bunch of other tax changes. Plus, a lot of 2009 tax credits expired. Just make sure you know the new 2010 tax rules do that you can take advantage of every break you’re eligible for, from the Energy And Appliance Tax Credit to the American Opportunity Tax Credit. This is where a program like TurboTax (used by 20 million Americans) can really help.  Plus, it will help you avoid making simple math mistakes that could be costly.

File early!

Once everything is together and you’re ready to file, file electronically.  E-filing is the quickest way to get your refund–it’s yours in as few as 14 days; 10 if you use direct deposit. Futhermore, electronic returns have 13% fewer mistakes than paper returns.

This year, SnapTax is available for all states AND for both iPhone and Android mobile phones.  SnapTax is all about making it simple to file your taxes.  Just shoot, snap, file and you’re done.  So easy, it’s like magic! Here’s a snappy video to help illustrate.

SnapTax uses optical character recognition (OCR) technology to snap a photo of a W-2 and transfer data to the tax return. Very cool! Answer some basic questions, check the return for accuracy and tap “File Now” when your ready to electronically file your return. There’s a running tally of the refund, or taxes owed, every step of the way. Your tax information is literally at your fingertips.

You can download SnapTax for free in the Apple App Store and Android Market and pay an introductory price of $14.99 when you are ready to e-file your return. The price includes federal and state preparation and e-filing.

Last year, SnapTax was limited to CA residents with an iPhone only and quickly achieved a 4 star rating in the Apple App Store. Feedback from customers was great. Avery Ryder, a 21-year-old college student and the first person to file a return using the app shared his reaction. “It captured all of my information perfectly and the import worked great … surprisingly great because I didn’t have to re-enter anything”, Ryder said.

This year, SnapTax is available to millions of taxpayers in all states. Designed for those with a simple return (1040EZ), SnapTax will quickly and easily walk them through the process. Sounds like something you may want to check out for yourself? There are some qualifications to help you decide is will work for you. Check out the Apple App Store or Andoid Market or go to www.SnapTax.com. So what are you waiting for…Snap to it!

Fear not, if you use TurboTax, it’s as simple as going to to the “open form” icon, and scroll or search for W-2.

When you hit “open,” you’ll be able to view an existing W-2 you worked on or create a new one.  There are two main issues with having W-2s from two jobs during the year. First, recall that the Social Security Wage Base (the amount of your income subject to FICA withholding) was $106,800. If your W-2 social security wages total more than this amount, you’ve overpaid and should look to your form 1040 line 69 to see that you are due a refund for the amount overpaid. Of course, if you are filling form out by hand, this is something to be aware of, anything you’ve paid in over $6,622 show be noted and refunded.

The other issue is whether the right level of federal taxes were withheld. If the two jobs were sequential, say one for 5 months, a layoff, and the next job for 5 or 6 months, you were likely withholding on the right pace, maybe even a bit too much as the amount withheld assumed a full 12 months employment. On the other hand, if one has two jobs concurrently, there’s a chance you under withheld as the tax bill on say, $60,000 is well more than twice the tax due on $30,000. Still, no need to panic, if you are in this situation, it’s time to pay the 2009 tax bill and quickly adjust your withholdings (via W4) so you’re not in the same boat next year.

Indeed, multiple W-2s add a layer of complexity to your return, don’t let it be enough to scare you off.

Joe

For most people eager to get their taxes filed, February 1 has become sort of like Christmas.  The only difference being that instead of Santa Claus shimmying down the chimney with a bag of toys, a mail carrier brings little gifts in the form of W-2s, 1098s and various 1099s (who said grown-ups don’t have any fun?).  While we anxiously await the arrival of our various financial statements, it may be helpful to know that some of the forms may be delayed this year.  Take heart, it’s not necessarily bad news.

Why the change?  Last year, when the Congressional bailout was passed, a provision was added that gave mutual-fund corporations, as well as brokerage firms, additional time to distribute tax forms (especially Form 1099-B) that are used to report earnings from brokers’ transactions.  The deadline has been pushed back from the usual January 31st to February 15th.  And, to add some confusion to an already confusing situation, February 15th falls on a Sunday this year and the 16th is President’s Day, so brokers technically have until February 17th.

But wait, there’s more!  The February 17th deadline also pertains to other tax information that customers receive from their brokers.  Interests and dividends on a combined year-end statement could be affected too.

So, what’s the silver lining?  Well, the change was designed to give brokers more time to make sure the year end statements they provide their customers are accurate.  According to the IRS, up to 20% of the 1099s brokers send to their clients end up getting amended.  Usually, the clients have already filed their taxes by the time they get the amended 1099s and that means they have to amend their returns (and even with TurboTax, amending a return is no fun).  So the thinking is—give the brokers more time to compile accurate info, and returns should be more accurate (I guess you could call this trickle down taxes).  I guess we should take a few things from this.

1)    The 1099-Bs that show up later this year should be more accurate and therefore should make it easier for us to file.

2)    Not all year end forms are affected—W-2s, 1098s and other 1099s still have a Jan. 31st deadline.

3)    Stop bugging your mail carrier—he/she isn’t Santa and, just because you haven’t gotten some of your statements, doesn’t mean you’ve landed on some financial naughty list (although I’m pretty sure mail carriers do appreciate milk and cookies).

Here’s a list of the documents that you may receive within the next month. Throughout January, I’ll talk about each type.  But for now here’s the list of the typical documents:

Keep an eye out for these documents.  My next blog will talk about W-2s and W-2Gs. Happy Tax Season to all of us.  May our tax preparation be easy and we all get a big refund (how we wish!).