28-Tax payment issues

What happens if a taxpayer didn't receive his/her W-2 from employer?

1. Contact the employer and ask for the W-2. 2. If No. 1 was not possible, then ask for taxpayer's W-2 history, directly from the IRS. 3. If No. 2 doesn't work either, use the taxpayer's paycheck stubs to create a "Substitute W-2" on Form 4852.

Tips on preparing W-4

1. Help the client understand the purpose of a W-4. 2. Identify clients who are under-withheld or over-withheld and tell them what they can do about it (change their W-4). 3. Do NOT take responsibility for your client's tax payment issues: A W-4 is a tool to help taxpayers make calculations of how much tax should be withheld at the job, but neither the W-4, not the tax preparer who fills it out, are infallible. *Filing a false or misleading W-4 can be viewed as a form of tax evasion, especially for repeat offenders. *Sometimes, if the IRS sees that a certain taxpayer is repeatedly using an "incorrect" W-4 to avoid paying income taxes as required, IRS will send a "Lock-in letter" to the employer of that person, and the employer is legally bound to honor the IRS lock-in letter.

Many people don't pay Federal income tax

About 47% of Americans pay zero federal income taxes. Some taxpayer who have no tax liability still pay income taxes into the system during the year as withholdings from their job paychecks. These people will then receive those taxes paid back in their tax refunds when they file their income tax returns by April 15th of the next year.

Pay as you go

It is required that taxpayers pay their income taxes as they make their income. They cannot pay one lump sump at the end of the year. Pay attention to this rule especially for business owners (self-employed). Failing to comply with this rule can lead to penalties.

What is Form W-4P (Withholding certificate for pension or annuity payments)?

It is the tax form where taxpayers can choose how much to have withheld from their retirement income. This information tells the pension or annuity administrator (payer), how much tax to take out from the payment.

Pension and Annuity withholding (miscellaneous issue)

This is another miscellaneous withholding issue. The majority of pensions and annuities are subject to income tax and thus to income tax withholding requirements. Taxpayers who are receiving income that will cause them to pay income tax should pay withholdings on that income, even if the source of that income is a pension or annuity. *Use Form W-4P

What is a Backup Withholding?

Usually with a 1099, the responsibility is generally on the recipient of the 1099 income to pay the taxes on that income (i.e. 1099-NEC, where there are not taxes withheld). However, there are situations where the payer of a 1099 is required to take out taxes, and this is called the Backup Withholding, where the payer of the 1099 income must request a valid TIN on Form W-9 before paying the recipient of a 1099. The rate for Backup Withholding is 28%

Can you pay your taxes by credit/debit card?

Yes, however there is usually a 3% service fee for processing credit card tax payments. If the payment is made by credit card, any interest charged by the credit card company if you pay the amount back over time will also be applied. (So, in general is not a good idea to pay with credit card). There are some instances where paying with credit card can be advantageous, such as when a client is getting a frequent flier miles for using the credit card.

How are tips reported?

Employees who receive tips are supposed to report these tips to the employer, who would then include those amounts as part of their wages on the W-2. IRS Form 4070 was created to aid employees in reporting tips received to their employers. When tips are reported to the employer, the employer would then take the appropriate amount of tax withholding as indicated by the employee's W-4. There is also Form 4137, Social security and Medicare tax on unreported tip income, which allows tip-receiving employees to report unreported tips at tax time.

What is Form W-4?

Form W-4, Employee's Withholding Certificate, enable employees who work "on payroll", to control how much in taxes their employer takes out of their paychecks during the year. A W-4 helps taxpayers (who are employees) estimate their tax liability for the year. It also helps taxpayers pay their taxes during the year so that they don't owe at the end of the year. Employers are required to use W-4 to ask how much tax should be taken out of an employee's paychecks and paid to the IRS as part of the "pay as you go" income tax system. If an employee knows that he or she will not incur any income tax, the employee has the right to write "Exempt" on Form W-4, and cause the employer to not withhold any income taxes. *Self-employed do not get this Form.

What happens if it is a Gambling loss?

Gambling losses up to the taxpayer's winnings may be deductible on the Schedule A, Itemized deductions.

Gambling withholdings (miscellaneous issue)

Gambling winnings are taxable income. The IRS demands that payers of gambling winnings, such as casinos and racetracks, report winnings directly to the IRS. Payers report to the IRS on Form W-2G. Generally speaking, for winnings of $600 or more, the payer may be required to take withholdings. A tax preparer must look at the Form W-2G, enter in the income, and also enter in the withholdings from Form W-2G.

What if a taxpayer's W-2 Form is completely wrong?

If the mistake appears to be an innocent error, such as typo, you should advice or assist the client to request a reissued and corrected W-2. If it is NOT an innocent error (i.e. an employer issuing a false W-2 in order to gain some illegitimate benefit for themselves), that is completely illegal, and you and your taxpayer client should report offending employers to the IRS immediately.

What is Dependent Care Benefit from Cafeteria 125 plan?

It is an amount that employer pay the employee for the employee's child care expenses. These payments must be made in accordance with the IRS rules in order to be legitimate. Assuming that those rules are followed, this amount for employer-paid dependent care benefits is not included in the Wages portion of the employee's W-2. The dependent care benefits payments are not subject to withholdings. These payments themselves are not subject to income tax, state income tax, FICA tax, or Medicare tax.

What is IRS Publication 531

It is an extensive information provided by the IRS about how to report tips on the income tax form.

Do you really need the W-2 to do the taxes? Can't you just use your last paycheck stub?

Often, using the paystubs instead of the official W-2 will lead to problems. Because so many people had been using income and tax information from their check stubs instead of waiting for the W-2, the IRS has released a memo to tax preparers emphasizing that taxpayers should use their W-2s to file taxes, not their paystubs.

What is Allocated tips?

This is an IRS reporting technique required for many employers who have employees who receive tips. The allocated tips process entails looking at the total sales for each server, and then making sure that tips reported add up to at least 8% of that server's total sales. If the tip amounts reported to the employer by the employee is less than 8% of the total sales of that server, the difference between 8% of sales and the reported tip amount of that server is then included in Box 8 of the W-2, creating taxable income. There are no tax withholdings taken from this amount during the year.

How to make estimated tax payments?

Taxpayer can: 1. By mail using Form 1040-ES. 2. Online through IRS Direct pay 3. The EFTPS system

What happens if a taxpayer receives a corrected W-2 after they've already filed their taxes?

Taxpayer should file an Amended Return on Form 1040X noting the correction being made and attaching a copy of the corrected W-2.

Estimated tax payments

Taxpayers who receive "no withholdings" income may be required to make estimated payments during the year, to cover their obligation to "pay as you go". If you would owe more than $1,000 in taxes at the end of the year, you are required to make estimated payments during the year. These estimated payments are due on a quarterly basis: - April 15 (For 01/01 to 03/31 period). - June 15 (For 04/01 to 05/31 period). - September 15 (For 06/01 to 08/31 period). - January 15 of the next year (For 09/01 to 12/31 period)

Underpayment of Estimated tax penalty

Taxpayers who were required to make estimated tax payments during the year but did not cooperate with the requirement may be subject to Underpayment of Estimated Tax penalties. There are some exceptions to the Penalty for non-payment or under-payment, which includes: - As long as the taxpayer has paid at least 90% of the current year tax or 100% of the prior year's tax liability. No underpayment of estimated tax penalty will be charged. - Estimated tax was not paid due to death, disaster, or some other "reasonable cause". - Taxpayers over age 62 or disabled with incorrect payments not due to willful neglect are included. - The reason for the underpayment is the tax rates changed during the year. Use Form 2210 to apply for the Waiver of Estimated tax penalties.

What happens if a W-2 is illegible (not readable)?

The taxpayer should request a better copy to the employer. If that doesn't work, call the IRS and request the W-2 information from them. If that doesn't work, you may revert to creating a Substitute W-2 using Form 4852. *No matter what you do, don't "guess" or falsify income information.

What is Cafeteria 125 Plan?

They are certain benefits that an employer provide to an employee other than just cash payment. The IRS set some rules for the Cafeteria 125 Plan.