Paycheck as W-2 Income
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Did you receive your first paycheck, but don't understand all the items on the paycheck? Click on the image here and learn about sample paycheck line items. Keep in mind that paychecks vary in format but not in substance.
Your paycheck is your first source when estimating your and spouse's federal tax withholding - see line 6 below - via the new 2020 W4 form. Of course, if you have additional taxable income, you can include this as well. Start with the eFile.com PAYucator when you complete the new 2020 W-4 form. When done, use the WITHHOLDucator and taxercise you paycheck and define your tax return goals for the given tax year: more or less tax refund, taxes owed, or to be tax balanced?
Sample Paycheck Line Items
Generally, a paycheck from any company will follow a similar format. They will display your employers information, dates, and pay amounts. Depending on your benefits from the job, your paycheck can be broken down as follows:
- 1-Employer Name and Address: This information is required when you prepare and e-file your income tax return. It should also match your W-2.
- 2-Payment Period: It should match what's listed on your W-2 from your employer.
- 3-Employee Information: Your name and address.
- 4-Filing Status and Current Allowances: Your current filing status and allowances/withholding - change them via the W-4 you submit to your employer.
- 5-Pay Rate: Your current and year-to-date gross pay rate.
- 6-Federal, State Income Tax and Other Withholdings: Estimate your federal taxes withheld for the year when you use the PAYucator or WITHHOLDucator.
- 7-Net Pay: This is the payment amount you will receive as a check or bank direct deposit after your tax and other withholdings.
- 8-Other Benefits: Vacation, sick time benefits year-to-date etc.
You can decide whether you want a refund, owe taxes, or be tax balanced when you file your tax return by reviewing and updating your federal W-4. You can do the same for your state income tax withheld.
W-4 or Tax Withholding Form
The Form W-4 is a form you complete here on eFile.com and give to your employer. Your W-4 lets your employer know how much federal and/or state tax you want withheld for each pay period.
You may want to balance your withholding so your refund comes from refundable tax credits and other tax breaks rather than from having too much money withheld from your paycheck. To accomplish your tax return goals, you may need to adjust your W-4 or federal tax withholding several times a year.
- Before you or when you do this, you should estimate your tax return for the given tax year. See how altering your withholding would affect your taxes at the end of the year.
- Be sure your information is up-to-date. Let your employer know if you add a new dependent, if your filing status changes, or to simply make direct changes as a dollar amount. Increase your tax withholding amount (decreases your net paycheck) by directly entering an additional dollar amount on 4(c) of your W-4, for example. If you do not make any adjustments, your employer will use the information in Steps 1-3 to withhold money each paycheck.
- If you decrease the amounts in section 4 too much, you might end up owing taxes when you file your tax return because you did not have enough money withheld from your paycheck during the year.
- If you expect a large refund, you are handing too much of your hard earned money to the IRS only to get it back in form of a refund. Most states also require you to complete a state tax withholding form.
How to Get More out of my Paycheck
First, learn how to save some money during the year. This can be a helpful way to minimize your spending and thus have more of your paycheck to save, invest, or use for essentials. See how to save on taxes - there are many ways to keep more of your money during the year. Learn about the many tax credits and tax deductions that can be used to decrease your total tax at the end of the year.
When you prepare your return on eFile.com, you will see all the various tax credits and deductions calculated for you. These are applied to your income information and can lower your total tax liability. Your paycheck is going to come in on a scheduled basis, but you, as an employee and taxpayer, have the ability to adjust how much of it you receive as well as what you spend it on.
Decrease your taxable income by contributing to a retirement plan. Many retirement plants can be tax deductible, meaning you contribute pre-tax dollars that take away from your taxable income and may move you down to a lower tax bracket.
In addition to your paycheck, see information on cryptocurrencies and investing. Additionally, see how a capital gains tax may be applied to your investments. Report your W-2 income, investment income, self-employment income, and all other income on eFile.com when you prepare your tax return.
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