The W-2 Form (Wage and Tax Statement)

1. The W-2 Form(Wage and Tax Statement)

2. During the prior lesson, we learned about the W-4 Form. • W-4 Form: • The form YOU fill out for your employer. • You state the number of allowances you take. • Less Allowances: • The government withholds money each paycheck. • The government usually OWEs you a refund. • More Allowances • The government doesn’t withhold that much • You OWE taxes at the end of the year.

3. Do you have to pay tax on: • Weekly Wages? • Yes!

4. Tips you make? • Do you have to pay tax on: • Yes!

5. Work Bonuses? • Do you have to pay tax on: • Yes!

6. How does the government know how many tips you got? • You are supposed to report your tips • to your employer.

7. April 15th: • The deadline for you to figure out how much tax you owe. • But how? How do you figure out how much tax you owe?

8. W-2 Form: • Your employer will send you a form called the W-2 Form. • It is also known as the Wage and Tax Statement. • Using the information on this, you will complete a form called the 1040. (But we’ll talk about that tomorrow)

9. What is on the W-2? • Let’s look at an empty one:

10. Here is one that an employer has filled out:

11. So what are the numbers in the boxes for?

12. Box 1: • This is your TOTAL taxable wages for FEDERAL (not state) income. It includes wages, salary, tips you reported, bonuses, etc…

13. Box 2: • This is the amount of tax that has already been withheld from the government (based on the allowances from your W-4).

14. Box 3: • This box reports the amount of your wages that are subject to Social Security Tax. Only $90,000 can be subject to SS tax. Since most of us make UNDER $90,000 this will always be the same as Box 1.

15. Box 4: • This box reports the amount of Social Security Tax that was withheld from your paycheck. The SS tax is a flat rate of 6.2% 30,275 * .062 = 1,877.05

16. Box 5: • The amount of wages subject to Medicare taxes. There is a cap on the amount you get taxed for Social Security($90 K), but none for Medicare! • (Also, the wages applicable to Medicare taxes don't recognize any 401K or 403B contributions. This is why the amount in Box 5 can be bigger than Box 1.)

17. Box 6: • This box reports the amount of Medicare Tax that was withheld from your paycheck. The Medicare tax is a flat rate of 1.45% 30,275 * .0145 = 438.99

18. Here is Mister Crow’s W-2:

19. The 1090-INT Form(Income Interest Form)

20. Let’s talk about….. Interest

21. You want to buy a car that costs $10,000. • You don’t have $10,000. • What do you do?

22. Go to a bank and take out a LOAN!! • So, the bank let’s you borrow money. Do they let you borrow that money for free? • NO! They charge interest.

23. The bank charges interest to let you borrow their money. • Likewise, the bank will GIVE you money if you let them borrow money. • If you have a Savings Account with a bank you are letting them borrow your money.

24. What? I thought the bank put my money in an account! • NO! The bank does not have a little box with your money in it. They just record how much you gave them.

25. The bank takes your money, and the money of everybody else, and they create a big pool of it! Your money.

26. Then, they let people borrow that money. • They charge interest, or course. That’s how banks work. • But that’s no fair! They’re borrowing my money, letting other people use it, charging interest, and making money? What’s in this for me?

27. Well, the bank will pay you interest on the money you put in your account. • For example, John puts $500 in a Savings account. The Savings account has an interest rate of 3% per year. $500 * .03 = $15  The bank gives him $15 (the interest) at the end of the year.

28. What? Only $15? That stinks!! • Well… not really. What is the interest for $2,000,000?

29. $2,000,000 * .03 = $60,000 • $60,000 isn’t bad. That’s more than Mister Crow makes. All you have to do is let the bank borrow your money for a year. You don’t have to do anything!! • You could stay home all day long and watch Power Rangers – and still make more than Mister Crow!

30. The Question is….. • Do you have to pay tax on Interest?

31. YES!! You do! The government wants a cut of ANY money you make! • If you make money (income) from a bank, you get taxed on it! • The only time you don’t get taxed is if you get interest from letting a state or city borrow your money. (Bonds)

32. Taxable Interest Income: • Bank Accounts. • Tax-exempt Interest Income: • State and City bonds. • “Exempt” means it doesn’t apply to you.

33. April 15th: • The deadline for you to figure out how much tax you owe. • But how? How do you figure out how much tax you owe on any interest?

34. 1099-INT Form: • Your bank will send you a form called the 1099-INT Form. • It is also known as the Interest Income Form. • Using the information on this, you will complete a form called the 1040. (But we’ll talk about that tomorrow)

35. This is what a Form 1099-INT looks like:

36. How much interest did Mister Crow make?