Form W-2
Form W-2 is another key tax form that reports income earned from an employer and the amount of taxes withheld from an employee’s paycheck so taxpayers can accurately file federal and state income taxes. Form W-2 differs from the other forms in this article because it is completed and submitted not by the individual taxpayer but by their employer. The information on your W-2 form is then used to complete your Form 1040.
Good to know:
An employer must send a W-2 form to every employee to whom they paid a salary, wage, or other form of compensation (in the previous calendar year) before January 31st of each year.
The W-2 includes information about your total wages, and the total amount of federal, state, and other taxes withheld from your salary in a given year.
It may also contain other income information (if relevant) including, but not limited to:
Tips
401k contributions
Health coverage premiums
A copy is also sent to the Social Security Administration, the IRS, as well as state and local governments.
An individual can receive multiple W-2s if they work for more than one employer in a given year, or if their employer was acquired by another company
Withholding Tax
Withholding tax refers to the amount of federal income tax withheld (deducted) from an employer’s gross wages and paid by employers directly to the government. The vast majority of people employed in the United States are subject to tax withholding.
The amount of tax withheld from your paycheck is determined by the information employees provide to their employer in the W-4 form and depends on a number of factors, including:
Total salary amount
Taxpayer filing status
Taxpayer dependents
Withholding tax is used as a credit against your individual income tax bill. If too much money is withheld, you’ll get a tax refund; if too little is withheld, you may have to pay the IRS additional tax in your annual return. You may also be fined for tax underreporting if the tax withheld is too low.
Related W-2 Tax Documents
1099 Form: As an independent contractor or self-employed business owner, you’ll receive 1099 forms from your clients instead of W-2s. Since no employer exists to withhold taxes on your behalf, you are responsible for estimating the taxes you owe each year, and for paying additional self-employment tax.
Form W-2G: This is used by casinos or other gambling operators to provide reportable winnings. If you gambled and received winnings, you will receive Form W-2G immediately at the gambling venue or by the end of January the following year.
Schedule K-1 Form
Schedule K-1 is an IRS form used by partnerships, S corporations, and estates and trusts to declare the income, deductions, and credits that partners, shareholders, and beneficiaries have received in the tax year.
While a partnership/entity itself is generally not subject to income tax, individual partners are liable to be taxed on their share of the partnership income. The purpose of Schedule K-1 is to provide necessary information for a shareholder to accurately determine how much income (or loss) to report on their individual return. It is possible to receive multiple Schedule K1s in the same tax year if a taxpayer is involved with more than one partnership or relevant entity.
Who Needs to Prepare a Schedule K-1?
Typically the K-1 is prepared by a tax professional on behalf of an entity. There are four main types of entities that are required to file a K-1:
Business partnerships
LLCs that have at least two partners or elect to be taxed as corporations
S corporations
Trusts and estates
Each one of these entities completes a different type of K-1 form:
Partnership K-1 Form (Form 1065) is specifically for partnerships and is filed with the IRS along with the partnership’s tax return.
S Corporation K-1 Form (Form 1120-S) is filed to the IRS along with the corporation’s tax return (Form 1120-S).
Estate or Trust K-1 Form (Form 1041) includes the information on Form 1041.
Who receives a Schedule K-1?
Business owners, co-owners, and partners
Shareholders and investors
Beneficiaries of a trust or estate
What to Know About Schedule K-1
Schedule K-1 Forms are notorious for being late. If you are expecting one that has not arrived close to the deadline, consider filing for an extension.
Schedule K-1 can be quite complex and impact multiple areas of your Form 1040, including entries on Schedule A (itemized deductions), Schedule B (interest and dividend income), and Schedule D (capital gain profits and losses)
It is possible for K-1 income to trigger alternative minimum tax.
If your tax return involves a Schedule K-1, it is likely that your income and asset composition are significantly more complex than that of the average taxpayer. We highly recommend consulting a tax professional in these circumstances to ensure that:
Your forms (both the ones you receive and submit) are filled accurately
You are not mistakenly under or over-reporting income (leaving money on the table or opening yourself up to penalties and fines)
You are taking advantage of all the available deductions and mechanisms for reducing your overall tax liability.
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