Tax time is in full swing and if you are employed, you should have received your W-2 (officially known as the Wage and Tax Statement) by the end of January. No doubt you are familiar with the W-2 form if you have been employed for several years. The size, shape and format of your W-2 depends on the employer’s payroll processing program, but regardless of format, each W-2 contains the same information.
This year you may find something different on your form. The new health care legislation, the Affordable Care Act, requires employers to report the cost of your employee coverage under your employer-sponsored group health care plan on the W-2 they issue to you. Though optional for 2011 W-2s, these reporting requirements will become mandatory for employers with 250 employees or more in 2012 and become mandatory for all employers beginning with 2013 W-2s.
You’ll find such benefits reported in Box 12 of the Form W-2, identified by the Code DD. If you see health care insurance costs reported on your W-2 this year, don’t panic. Just because the information appears on your W-2 doesn’t mean it is taxable to you. These benefits have always been tax-free, and still remain tax-free under the health care legislation. The information is there so you can better understand the cost of the health insurance benefit you receive through your employment.
The health care coverage costs reported to you will not include the cost of long-term care coverage, accident or disability income insurance, liability insurance, worker’s compensation benefits, or other plans for which medical care benefits are incidental to other benefits. If your dental and vision coverage is under a stand-alone plan not connected to the major medical plan, those costs are also excluded from reporting.
Here are some more tips for reviewing your W-2:
- Notify your employer if your social security number is wrong in Block A, and ask your employer to issue you a corrected form. Don’t try to change it yourself – your employer must send a correct copy to the government for the change to be effective.
- Compare the figures in Boxes 1 (federal wages), 2 (federal income tax withheld), 16 (state wages) and 17 (state income tax withheld) to the figures on your final paycheck. Don’t assume your W-2 is correct – employers can make mistakes.
- If your employer paid for your moving costs
during the year, review Box 1 to see if those payments are included there. If your employer included your moving expense reimbursement in income, be sure and claim your moving deduction on your tax return. Skip this step and you’ll be overpaying your income taxes by missing an important deduction. QuickBooks Expert will guide you through deducting these expenses.
- Check the figure in Box 4 if you made more than $106,800 in 2011. This is especially important if you had more than one employer in 2011. The maximum social security that should have been withheld from your paycheck in 2011 is $4,485.60 (4.2% times $106,800). If more than that was taken out for Social Security taxes from your combined employers, you may claim the excess withholding as a credit on your income tax return.
- Read Box 13 to see if “statutory employee” is checked. If it is, you must report your wages for this W-2 on Schedule C of your Form 1040.
- If you didn’t receive your W-2 form by mid-February, contact your employer. If the employer refuses to provide the W-2 to you, contact the IRS at 1-800-829-1040 with the employers name, address, telephone number and employer ID number, if you know it. If you still can’t get a W-2 form, file Substitute W-2 Form, based on your final pay stub from that employer for 2011.
Knowing how to read a Form W-2 can help you understand your salary, and also help you get a head-start when preparing your taxes.