Some tax questions come up fairly often. Here are a few of the most common questions asked in tax forums and other sources:
- Which tax withholdings do I get back, and why?
- Do the rich get special tax breaks? How can I get in on that?
- Who actually needs to file?
- My Employer Won’t Give Me a W-2! What Do I Do?
Which tax withholdings do I get back, and why? For most non-contract workers in the US, taxes will automatically be withheld from each paycheck. Those taxes can be roughly divided into three categories:
- First, taxes you don’t even see: your employer pays half of your Social Security and Medicare taxes, and all of your unemployment taxes. Although these amounts don’t actually show up on your paycheck, you are de facto paying them (this is because an employer calculates the total cost of hiring someone — their salary, taxes, benefits, training costs — and adjusts the offered salary accordingly. If they have to pay more in taxes, but only in proportion to the salary they pay, their incentive is to lower that salary to recoup some of the cost).
- Second, taxes based entirely on income. These include Medicare and Social Security, and are collectively known as FICA (Federal Insurance Contribution) taxes. Since they are assessed based entirely on how much money you earn, not your filing status or deductions, they cannot be over- or under-paid in normal circumstances, so they won’t be refunded.
- Finally, there are taxes based on income and other factors. These include Federal income taxes, as well as some state and city taxes. Since these vary based on decisions that are made after you get your paycheck (e.g. how you file, what you deduct), the money withheld is only an approximation of your final cost.
Do the rich get special tax breaks? How can I get in on that? It’s hard to miss headlines about rich people hiding millions of dollars from tax authorities. But the statistics and the headlines tell very different stories.
The well-known investor Warren Buffett complains that he paid less in taxes on $46 million than his secretary did on $60,000. But that number is highly deceptive: Buffett’s earnings came mostly from dividends and capital gains, both of which are taxed at a lower rate for individuals — but only after being taxed at the corporate level. The taxes paid on the income Buffett has, rather than the taxes he personally paid, would be much higher.
In addition, the money to purchase those capital gains- and dividend-generating assets must have come from somewhere, so it’s likely that he’s been taxed even more: he paid income taxes on income, then invested it in a corporation paying corporate taxes, and to get his money out he paid even more taxes on dividends and capital gains.
According to the National Taxpayer’s Union, the richest 1% pay almost 40% of all income taxes, more than any other percentile. They earn about 22% of the income, though, so they’re paying a disproportionately high amount in taxes. And there isn’t much data on this, but I get the impression that they also spend a much higher amount — in absolute and relative terms — on legal and accounting professionals who help them minimize this burden.
Even if the rich do have special tricks to lower their taxes, it’s clear that these tricks don’t compensate for the higher rates rich people have to pay. Of all the problems I’d like to have, high taxes on a multi-million dollar income rank pretty high. But it’s probably more productive to ask how the rich make their money, rather than how they protect it from the IRS.
Who actually needs to file? “What if I’m under 18?” “Do I really have to pay taxes for babysitting or mowing lawns?” Tax forums are full of questions about just who has to file. The IRS has a handy guide to all income tax matters, from which this information is drawn.
Unfortunately for many hopeful people, the IRS doesn’t write rules that say “You must file if…” Their rules take the form “You must file. Unless…” Here are the reasons you would not need to pay taxes, according to IRS Pub 17:
- If you’re neither 65 or older nor blind, you must file if any of these are true:
- Your unearned income was more than $850.
- Your earned income was more than $5,350.
- Your gross income was more than the larger of a) $850, or b) your earned income (up to $5050) plus $300.
- If you are either 65 years old or older, or blind, you will file if any of the following is true:
- Your unearned income was more than $2,150, or $3,450 if you’re 65 or over and blind.
- Your earned income was more than $6,650 or $7,950 if you’re 65 or over and blind.
- Your gross income was more than $1,300, or $2,600 if you’re both 65 or over and blind, plus the larger of either a) $850, or b) earned income up to $5,050 plus $300.
- For non-dependents, you must file if:
- If you’re under 65 and…:
- Single, and your gross income was at least $8,750.
- Married Filing Jointly, and your gross income was $17,500 (or $18,550 if one spouse is 65 or older).
- Married Filing Separately and your gross income was at least $3,400.
- Head of Household and your gross income was at least $11,250.
- Qualifying Widow or Widower with Dependent Children and your gross income was at least $14,100.
- Or if you’re 65 or over and…
- Single, and your gross income was over $10,050.
- Married Filing Jointly, and your gross income was over $19,600 (or $18,550 if your spouse is under 65).
- Married Filing Separately, and your gross income was over $3,400.
- Head of Household, and your gross income was over $12,550.
- Qualifying Widow or Widower with Dependent Child and your gross income was over $15,150.
- If you’re under 65 and…:
- And we’re not out of the woods just yet! Even if none of this forces you to file, there are four broad exceptions that require filing. If any of these are true, you must file:
- You owe even a single one of the following special taxes:
- Social Security or Medicare tax on tips you didn’t report to your employer.
- Social Security or Medicare tax on wages you received from an employer who did not withhold these taxes.
- Uncollected social security, Medicare, or railroad retirment tax on your group-term life insurance.
- Alternative minimum tax.
- Additional tax on qualified retirement plans, including IRAs.
- Additional tax on an archer MSA or health savings account.
- Additional tax on a Coverdell ESA or qualified tuition program.
- Recapture of an investment credit or low-income housing credit.
- Recapture tax on the disporition of a home purchased with a federally subsidized mortgage.
- Recapture of an education credit.
- Recapture of the Indian employment credit.
- Recapture of the new markets credit.
- You received advance EIC (earned income credit) payments from your employer.
- You had net earnings from self-employment of at least $400.
- You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.
- You owe even a single one of the following special taxes:
For most people who suspect they won’t have to file, the $400 of self-employment income is where they run into trouble. Lots of small businesses — lawn-mowing, babysitting, even lemonade stands will fall into this category. Although the IRS is not likely to mind if a fourteen-year-old doesn’t report $500 from helping Uncle Fred fix up the house, it’s usually a good idea to get into the tax-reporting habit early.
My Employer Won’t Give Me a W-2! What Do I Do? This is really two questions: how do I file if I don’t have a W-2? And how do I make sure my employer pays the penalty for refusing to give me the form?
They’re both useful questions. To file taxes without a W-2, you can use what’s called a Form 4852, which allows you to come up with your own equivalent to the W-2. You’ll have to use your pay stub to come up with the numbers (usually, a pay stub tells you how much you’ve made and paid all year — if not, you’ll have to add up the numbers from all your pay stubs, or make an estimate).
If you get your W-2 after you’ve filed your taxes without it, don’t worry! All you have to do is file a 1040X to amend your tax filing.
Getting your employer to give you the form is a little more complicated. They face escalating fines if they don’t give you the form — $15 for getting it to you late, $30 if it’s more than thirty days late, and $50 if they file it after August 2nd, or not at all. It might sound like a small fine, but sending you some information is going to cost them less than the $15 minimum fine, so all you have to do is let them know you’ll tell the IRS.
It can be hard to come up with these estimates on your own, there are several sources for professional help filing your taxes without a W-2.
Your past year taxes can also be filed online.