To help us succeed, the following may give you some question suggestions, additional knowledge or reminders along the way:
- Question Employees Should Ask Their Employers: My periodic paychecks include deductions for life insurance premiums (i.e., supplemental dependent life, supplemental employee life, etc.). Are these deductions part of an “Employer-Owned Life Insurance Contracts”? Your employer could likely be the beneficiary of your death benefits under both your supplemental dependent and employee life policies and not your spouse or children. So always check.
- You should also check every item on your paystubs for the year are clearly reflected on your W-2s, and know the reason for the difference. Simple example: The difference between your gross salaries for the year and the amount shown on box 1 of your W-2 (Wages, Tips, Other Compensation) may have been contributions made on a qualified plan or “Elective Deferral” as discussed on item 4).
- One of the many misconceptions of taxpayers: Some taxpayers may have been led to believe that they could increase the number of exemptions on their Form W-4s to reduce or eliminate the proper withholding of taxes. 2017 IRS Publication 17, chapter 4, page 40, column 2 states, “You may have to pay a penalty of $500 if both of the following apply: 1) You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld, 2) You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.”
- If you are covered by certain types of retirement plans at work, you may be able to defer tax liabilities on your income by having your employer contributes part of those income to a qualified plan. That part of your income you set aside is called “Elective Deferral”. Per 2017 IRS Publication 17, chapter 5, page 51, columns 1 and 2, “Elective deferrals include elective contributions to the following retirement plans: 1) Cash or deferred arrangements (section 401(k) plans) – limit of $18,000, 2) The Thrift Savings Plan for federal employees, 3) Salary reduction simplified employee pension plans (SARSEP) – limit is $18,000, 4) Savings incentive match plans for employees (SIMPLE plans) – limit is $12,500, 5) Tax-sheltered annuity plans (403(b) plans) - limit is $18,000, 6) Section 501(c)(18)(D) plans – limit is either $7,000 or 25% of your compensation, 7) Section 457 plans – limit is the lesser of your includable compensation or $18,000.
- Per 2017 Publication 17, chapter 17, page 123, columns 2 and 3, if you are not covered by any types of retirement plans at work, you can open a traditional IRA at any time. However, there are limits and other rules that affect the amount that you can contribute to a traditional IRA. The publication states, “For 2017, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: a) $5,500 ($6,500 if you are 50 or older), b) your taxable compensation for the year.