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Objectives

Objectives. Federal income tax withheld from Forms W-2, Wage and Tax Statement Federal income tax withheld from Forms 1099 Estimated tax payments and amounts applied from the prior year's return Amount paid with a request for an extension to file

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Objectives

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  1. Objectives • Federal income tax withheld from Forms W-2, Wage and Tax Statement • Federal income tax withheld from Forms 1099 • Estimated tax payments and amounts applied from the prior year's return • Amount paid with a request for an extension to file • Excess social security and tier 1 RRTA tax withholding

  2. Form W-2 The federal income tax system is a "pay as you go" system. That means tax is paid as income is earned or received during the year, and is referred to as withholding credit. • Income tax is generally withheld from the following types of income: • Salaries and wages • Tips • Taxable fringe benefits • Sick pay • Pensions and annuities • IRA and 401(k) distributions • Gambling winnings • Unemployment compensation • Certain federal payments such as social security benefits

  3. Form W-2 (continued) Taxpayers who had income tax withheld during the current tax year will receive one, or more, of the following forms, showing the amount withheld: • Form W-2, Wage and Tax Statement • Form W-2G, Certain Gambling Winnings • Any one of several types of Form 1099 • The total federal income tax withheld is entered in the Payments section of Form 1040, page 2, on the line for federal income tax withheld.

  4. Example Freda, who is a clerk, received Form W-2, reporting federal income tax withholding of $1,000. She also received Form 1099-INT from her bank, which reflected federal income tax withholding of $50. The correct total withholding to report on her return is $1,050 ($1,000 + $50)

  5. What are estimated tax payments? Many taxpayers have income from self-employment, dividends, interest, capital gains, rent, and royalties. The "pay as you go" system also applies to this income. If the tax due on this income exceeds certain limits, the taxpayer must make estimated tax payments on a quarterly basis. If estimated payments are not paid when they are required, a penalty could be imposed. This also applies if taxpayers do not have enough income tax withheld from their salary or wages.

  6. Payments Applied from a Previous Year Taxpayers who overpay their income taxes in one year can apply all or part of their overpayment to the next year's tax. This is done by indicating on their return the amount to apply to the next year's estimated tax. Ask the taxpayer: • Did last year's return show an overpayment? • Did you apply any part of the overpayment to this tax year? If the answer is "yes" to both questions, ask to see the 2010 tax return to document the amount of tax applied to 2011. Add this amount to the estimated tax payments and enter the total on the applicable line. You will be confirming information provided by the taxpayer that should be included on the intake and interview sheet.

  7. Extension vs. Payment • Taxpayers can get an automatic 6-month extension by submitting Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. This form extends the time to file until October 15. • This is only an extension to file, not an extension to pay. If taxpayers do not pay the tax due by April 17, they will owe interest and may be charged penalties. Refer to Form 4868 Instructions, How To Make a Payment With Your Application. • Later, when taxpayers file their return, they report the payment made with Form 4868 on the applicable line in the Payments section of Form 1040.

  8. How to File an Extension • Taxpayers may file the extension electronically or on paper. The extension must be transmitted or mailed by the due date of the return. • You can help taxpayers file for an extension using tax software.

  9. Other Types of Payments You will notice that the Payments section of Form 1040 also lists these credits: • Form 4136, Credit for Federal Tax Paid on Fuels • Form 2439, Notice to Shareholder of undistributed Long-Term Capital Gains • Form 8801, Credit for Prior Year Minimum Tax • Form 8839, Qualified Adoption Expenses • Form 8885, Health Coverage Tax Credit

  10. Excess Social Security and Tier 1 RRTA A taxpayer may have more than one employer and a combined income over the amount for the social security wage base. The wage base amount can be found in the tax form instructions. This means the taxpayer may have paid more social security tax than is required. If an employee exceeds this amount by working for more than one employer, the excess can be claimed on the return. This excess amount is entered on the applicable line in the Payments section of Form 1040 and is a refundable credit.

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