Just What Do Those Tax Forms Mean, Anyway?
By Elaine Nadalin
If you’re just starting your first job and making student loan payments chances are you will be encountering a series of tax forms throughout the year and throughout your adult life. Here’s a quick breakdown of some of the most common you may encounter.
W2 Wage and Tax Statement If you are on an employer’s payroll as an employee, you’ll receive this form in time for tax season. Employers are required to mail this form to you no later than January 31st. It will have a breakdown of your earnings and deductions (federal and state tax, for example) for a specific tax year. Compare the figures on your W2 with the figures on your last paystub of the tax year. If there are any discrepancies, be sure to follow up with your employer.
W4 Employee’s Withholding Allowance Certificate. Chances are you filled out this form the day you were hired with your current employer. Make sure your writing is legible and all other information is accurate when you complete this form. It’s a good idea to fill out a new W4 when your tax status changes, such as getting married, having a child, or other changes in your household that could affect your deduction status.
W9 Request for Taxpayer Identification Number and Certification: If you work for an employer as an independent contractor (employer doesn’t deduct any payroll tax from your paycheck) you will need to fill out this form at the time your start working for that particular employer or client. If you earn $600 or more from that particular job, they will need to report your earnings to the IRS when they file an informational return.
1099-MISC: If you are a freelancer or independent contractor, you will use this form to report your earnings to the IRS. Generally, if you provide services to an employer and you earn over $600.00, they are required to furnish you with a copy of the the 1099-misc for your own return. You will need to report these earnings on your tax return and pay any related taxes, such as self-employment tax. Check with a tax pro regarding your specific self-employment scenario if you have questions.
A 1099-Misc can also be issued for other forms of income such as royalties, rent, prizes, winnings (such as that huge Vegas payout earlier in the year) but they’re most commonly issued to independent contractors or freelancers.
1098-E Student Loan Interest: If you have any post-secondary education such as college, chances are you’re chipping away at student loan debt. Each lender for your student loans will issue you a 1098-E if you paid more than $600 in student loan interest during the year. The good news? You may be able to deduct that interest, depending on your specific tax situation and income level.
Depending on your particular work status and student loan status, you’ll encounter different tax forms at the beginning and the end of the year. Look them over carefully and check with your employer or student loan servicer if you notice in errors or discrepancies.
Double-check that the social security number on the form is accurate, along with your name. Report any errors immediately and don’t let those errors slide; correcting them later on can be a headache, especially if you filed a tax return with an incorrect social security number or misspelled name.
As your circumstances change, so will the type of tax forms you receive. Taking on investments, a mortgage, rental properties and other obligations all have tax forms to go with them.
As with any tax matter, check with a qualified tax pro to address your specific questions. Keep everything is an organized, safe place so you’ll have the forms handy when it comes to tax filing day.