Three Key Numbers to Check on Your W-2 Form

Tax season is nearing, which means W-2 forms will be coming soon from your employer. Your W-2 form contains key information that will help you fill out your tax return. It also decides whether you will receive a refund or have to pay the IRS. Some of the numbers can help you improve your future tax planning too.

Form W-2 Wage and Tax Statement

Today, we are discussing three of the numbers that you need to make sure are correct on your W-2 form.

Three Key Numbers to Check on Your W2 Form

Box 1 – Your Total Pay

This is one of the most important boxes on your W-2. It shows you your total amount of taxable income. It will be higher than the amount of money that you took home throughout the year if you have taxes withheld from your paycheck. However, it does not include some of the important benefits that allow you to qualify for special tax treatment.

Box 2 – Federal Income Tax Withheld

This box will allow you to determine whether you need to pay the IRS or whether they will be sending you a refund. If your tax withholding forms were filled out correctly, the number here should be close to your tax liability amount. If it is not, you need to go to the HR department at your place of employment and complete a new Form W-4. By doing so your number can be more accurate.

Box 12 – Special Benefits

This box will include all of the tax breaks you are entitled to. All of the things that usually are taxable wages will convert to pre-tax piggybanks such as 401 (k) retirement plans and flexible spending accounts. The more you have listed, the more you save on taxes, which means you should take advantage of everything your employer offers.

TurboTax is loyal to their customers and treat them as if they are not just another number.

Their online filing services has the ability to import your W2 information into your tax return so you can avoid worrying about your forms being delivered via snail mail. Their tax estimator can show you much you’ll be getting back this year in your IRS tax refund.

Educational Tax Deductions and Credits

The cost of education is always rising. However, if you are someone who wants to grow your knowledge base you will be happy to know that education tax deductions and credits can help education tax deduction credityou with the costs of your education.

One of the tax credits is the American Opportunity Credit and another is the Lifetime Learning Credit. These credits allow you to reduce your tax dollars, dollar for dollar when you claim educational expenses on your federal tax refund.

American Opportunity Credit

This credit allows you to reduce your taxes up to a maximum of $2,500 per student for the educational expenses endured for the first four years. However, students have to attend at least part time and not have been convicted of a felony drug crime.

Various things qualify for this tax credit such as books, equipment, supplies, tuition, and other school related fees. In the event that your taxes are less than $2,500, the refund cut off amount is $1,000. However, those who make more than $80,000 or couples who make more than $160,000 will receive a low credit amount. The phase out limit for the credit is $90,000 in income or $180,000 for couples.

Lifetime Learning Credit

You do not have to be actively pursuing a degree in order to claim this credit. This credit is for anyone who is taking a course to further his or her education. It covers required tuition, equipment, and books. It allows you to claim a maximum amount of $2,000 on each tax return however; if the amount granted is more than your tax bill, you will not receive a credit in the form of a refund.

Additionally, the phase out limit is $66,000 or $132,000 for couples. Those who make more than $56,000 or couples who make more than $112,000 will receive a lower credit amount.

Educational Tax Deduction

Tuition and fees deduction, student loan interest, work related education, scholarships and fellowships can allow you to ease some of your educational financial strains too.

Tuition and Fees Deduction

If you are unable to claim the Lifetime Learning Credit because of the phase out limit, you can claim the Tuition and Fees Deduction of up to $4,000. This is true even for taxpayers who do not itemize their tax returns. As long as you do not make more than $80,000 or $160,000 for couples you are eligible. However, you are unable to claim both a credit and a deduction simultaneously.

Student Loan Interest

Even if you do not itemize your deductions, you can deduct your student loan interest on your taxes. This deduction does not phase out until $2,500 per tax return. However, you must not exceed $60,000 in income or $125,000 if you are married. Furthermore, if you have cash in a US savings bonds to pay for your education the interest is tax-free as long as the cash is used for your education.

Try the Education Tax Credits Calculator

Education tax credit calculator

The Education Tax Credit Calculator will give you an accurate view of how much you could be entitled to. Just answer some simple questions regarding your income and your living circumstances and you’ll get a readout on how much you may be eligible for.

Work Related Education

If you are going back to school due to your job, you may be eligible to claim this itemized tax deduction. However, you have to prove that the education was to maintain or improve your work skills or a requirement from your employer. However, this deduction is not for those who have to do it to land a new career.

Scholarships and Fellowships

If you receive a scholarship or a stipend for a fellowship, it is tax-free if you use the funds for tuition, supplies, or other school related expenses. You do have to be a degree candidate though.

Closing Thoughts

If you are a student, you should file your taxes online. They will make sure you get the credits or deductions that you qualify for in addition to making sure that you receive the largest tax refund possible.

How Your IRS Income Tax Refund is Calculated

Many US taxpayers look forward to receiving their tax refunds during the tax season. However, if you have never prepared your own tax return, it can be mysterious as to how the refund amount you receive is determined. The good news is the process is easy.

tax refund calculator

Once your taxable income has been determined, a tax table is used to figure out how much income tax you have for the year. Then, that number is compared to the amount of money that you paid throughout the year.

If you paid more than your tax, you will receive a refund for the amount over. However, if you did not pay enough you will be expected to pay money rather than receive money back.

Withholdings Explained

When you work for an employer, you have a portion of your salary withheld from your paycheck. The government does this so they can be 100% positive that they are going to get their money. They understand that individuals run through money and if they take it before you have the chance to spend it they will have nothing to worry about.

The amount that you have to pay is based on an estimation of the amount of taxes you will owe when the end of the year arrives. Your employer bases the amount off your estimated annual income and your exemptions. It is very important that you keep your W-4 form up to date so you can have the correct amount of money being withheld from your paycheck each pay period.

How Withholdings Are Determined

You may or may not be aware of which tax bracket percentage you are in. If you are aware, you also may have noticed that your employer withholds more money than the tax bracket requires too. However, this is because they also factor in social security, Medicare, and state taxes.

Social security taxes take up 6.2% of your earnings while Medicare taxes takes 1.45%. Therefore, before any money is taken out for income taxes you have already had 7.65% of your income withheld.

Determining Your Refund Amount

The refund amount that you will receive is determined by analyzing the income tax and the federal income tax that was withheld throughout the year. In the event that you had too much federal income taxes withheld from your paycheck, you will receive a tax refund during tax season. Here is a free tax refund calculator.

Recap

Each year your refund is determined based on your w2 amount and, how much you paid in federal taxes from your paycheck throughout the year. The amount you owe is determined when you file taxes and if you have paid, too much you will receive a refund.

Additionally, majority of the money that you have taken from your salary is not going to paying taxes. Instead, it has to go to state taxes, Medicare tax, and Social Security tax. In addition, keep in mind if you have a premium through your employer, money could be taken out for that, which makes the amount of money coming out of your paycheck even higher.

Student Tax Credits to Take Advantage of

If you or someone you claim on your tax return is going to college this fall, some of your costs could save you money when tax season kicks off. You may be eligible for a tax credit on your federal tax return. Therefore, today we are providing you with tax credits and tips for back to school season that will benefit you during tax time.

American Opportunity Tax Creditstudent tax credits

This tax credit is worth up to $2,500 annually for eligible students. However, the American Opportunity credit can only be claimed during the student’s first four years of higher education. 40% of the tax credit is refundable. This means that you could get up to $1,000 of the credit back as a refund if you are eligible to receive it.

Lifetime Learning Credit

This tax credit is worth up to $2,000. It does not come with limitations like the American Opportunity Tax Credit, which means you can claim it as long as you are an eligible student.

One Credit per Student

When claiming tax credits keep in mind, you are only eligible to claim one credit per year. However, if the student happens to be your dependent and you have more than one dependent that qualifies, you are able to claim one credit for one student and the other credit for the other student.

Qualified Expenses

Qualified expenses are used to determine your credit. Qualified expenses include things such as the cost for paying your tuition, fees, and other student related expenses. For more information on the rules for each credit, visit the IRS website.

Eligible Educational Institutions

Eligible schools are those that offer education after high school. Most colleges and universities make the cut and some vocational and post secondary schools qualify. If you are unsure if your school qualifies, ask your school or see if your school is listed on the U.S. Department of Education’s Accreditation database.

Form 1098-T

Usually, you will receive Form 1098-T from your school by February 1st. This form reports your qualified expenses to the IRS. The amount shown can differ from what you paid. For example, your textbook costs may not appear on the form.

However, you are able to include those costs, usually, when you figure out your credit. Additionally, keep in mind that you can only claim the qualified expenses that you paid for during the tax year you are filing for.

Non-Resident Alien

If you are in the US on an F-2 Student Visa, you will generally be treated as a nonresident alien when it comes to filing your taxes. To find out more about this status visit the U.S. Immigration Support website. To learn more about restrictions you may experience visit IRS Publication 519.

Filing Your Taxes with TurboTax

Remember, when you file your taxes with TurboTax, you don’t need to know which schedules to fill out. We’ll ask you simple questions about your life and put your answers on all the appropriate forms.

You’ll get step-by-step instructions through your taxes, expert help when you need it and every deduction and credit that applies to you. We make sure you get the biggest refund possible.