If you haven’t received your W-2 by early February, contact your employer. They might be able to provide you with an electronic version for use until you receive the paper version in the mail. You can request an extension of 15 days to provide W-2s to your employees unless you show a need for a 30-day extension by faxing a letter to the IRS. Tax relief companies contact the IRS on your behalf to resolve your tax issues. Taylor Milam-Samuel is a personal finance writer and credentialed educator who is passionate about helping people take control of their finances and create a life they love.
Remember to adjust payroll liabilities
Sales tax is a common type of tax liability you’ve likely paid for when shopping. When a company sells a product or service, many state and local governments charge a sales tax. A sales tax is a percentage of each sale, paid by the consumer. Businesses must remit sales taxes to tax authorities on a quarterly or monthly basis. The two categories of credits are refundable and nonrefundable. Refundable credits result in a tax refund if your tax liability drops below zero, while nonrefundable credits do not.
Tax Liability: Types, Importance and Calculation with Example
It’s a liability even if an employee hasn’t taken any time off Bookkeeping for Veterinarians during the pay period. It’s a liability because employers are responsible for paying out PTO when an employee leaves the company or resigns. Tax liability refers to the amount of tax you owe to the government, while a tax refund is the amount return to you if you overpaid taxes during the year.
- Your AGI is your gross income minus adjustments like retirement contributions and medical expenses.
- Note some variables may change your payroll calculations from one pay period to the next.
- Accurately adjust your withholding amounts to avoid overpaying taxes throughout the year, freeing up more of your money.
- Tax season is upon us, and it’s important to understand what tax liability on W2 forms means.
- The difference between this and line 24 will either appear on line 34 as an overpayment, indicating that you’ll be receiving a refund, or on line 37 as a balance you still owe.
- If you work as an independent contractor, the company will likely send you Form 1099-NEC rather than a W-2.
Payroll taxes and insurance
If the name of an employee is too long, put the initials of their first and middle name. It’s more what is tax liabilities on w2 important to have the full last name of your employee on IRS Form W-2. See how much you can save when a TurboTax expert does your taxes, start to finish. All features, services, support, prices, offers, terms and conditions are subject to change without notice. The following TurboTax Online offers may be available for tax year 2024.
Standard deduction
Using all eligible tax deductions and tax credits is key to reducing total tax liability. This includes exploring credits for education, energy-efficient home improvements, and adoption credits. Tax liability is the total amount of tax you owe what are retained earnings to federal, state, or local governments based on your income, filing status, and other factors. It encompasses various taxes, including income tax, capital gains tax, property taxes, and self-employment taxes. The IRS sets a standard deduction as a fixed amount—$14,600 for single filers and $29,200 for married filers in 2024. You can subtract the deduction from your taxable income and don’t need to pay taxes on that portion of what you earn.
Tax Deductions
Taking these steps can help ensure that you owe taxes within your means, avoid surprises during tax season, and potentially receive a tax refund. If you’re formally employed by a US company, chances are you receive a W-2 tax form each year for filing your income taxes. As a W-2 employee, you may also be wondering what tax deductions are available to you to help reduce your federal income tax liability.
Boxes 4 and 6 show the amount of Social Security and Medicare taxes withheld. The amounts in boxes 3 and 5 might be different from the amount in box 1. This often happens in situations where you defer income as with contributing to a 401(k) or other similar plan. If you’ve taken out a mortgage on your home, you may be eligible to claim some of the interest on that loan as a tax deduction. The amounts you can claim depend upon the size of your mortgage and when it was incurred. Tax season can be a confusing time, especially when it comes to understanding your tax liability on W2 forms.
Apply for tax credits
These deduction amounts are adjusted for inflation each year and may be slightly different based on age, disability, and other personal factors. You claim the standard deduction when you file your federal income taxes each year. Your capital gains tax bracket is 15% if you’re a single filer with an adjusted gross income of $65,400. You’d include the $8,000 in your gross income before subtracting your standard deduction if you held the stocks for one year or less.
- Your taxable income gets divided into income ranges—or brackets—with each range getting taxed at a certain rate.
- A business owner who is aware of the deductions available to them may be able to invest more in growing their business, aware that some of the costs will be offset later.
- Your employer likely deducted a percentage from your pay all year for taxes, based on the information you submitted on your Form W-4.
- Buckle up, as we delve into the what, why, and how of tax liability, transforming confusion into clarity.
How to Reduce Your Tax Liability
Let’s take a look at a real-world scenario of income tax liability. If you own a company and employ workers, you must withhold, file, and send in payroll taxes. The amount you withhold from employees plus the money you spend as the employer determine the payroll taxes you owe.