Navigating Tax Day: Tips from a Payroll Expert about April 15th

Every year April 15th looms large on the calendar of every payroll professional and taxpayer alike. But what exactly is Tax Day, and why does it matter so much? Let's dive into the intricacies of this annual event from a payroll perspective.

What is Tax Day?

April 15th signifies the deadline for individual taxpayers in the United States to submit their federal income tax return. This information is reported on Form 1040, the form used to report your annual income. For many, the April 15th deadline also encompasses state tax filings, making it common to file both returns together (unless you’re a resident of Louisiana and have the luxury of a slower pace, with the state return deadline set for May 15th). As the clock ticks down, Tax Day can become a flurry of paperwork, calculations, and perhaps a touch of anxiety for those racing to meet the deadline. 

Say more about the W-2

The W-2 is the cornerstone of tax season for employees. This essential document provides a summary of your earnings, certain benefits, deductions, and tax withholdings for the previous year. Each of these items will be nested in their proper box on the W-2 form to make filing comprehensive. On or before Tax Day, the information on your W-2(s) should be filed with the appropriate agencies. Your filing is verified against your employer(s) returns which have been filed the previous year, so make sure you’re copying those numbers correctly.  

What if I have multiple W-2s?

Did you start a new job last year? Perhaps you juggled more than one job? Individuals navigating more than one employer throughout the calendar year will receive multiple W-2 forms. Each W-2 represents a distinct source of income, and it's your responsibility to record the wages and taxes associated with each position. 

Here's where it gets interesting: if you've withheld just enough from one job but exceeded the withholding threshold for another, combining these W-2s can alter your taxable income. Depending on your tax bracket, this may lead to either a tax liability or a refund. Similarly, if you're filing jointly with a spouse, their earnings can impact your tax liability, adding another dimension to the tax-filing puzzle.

Filing with a spouse

Nothing says “love” like filing taxes as a couple—sometimes a source of harmony, other times a source of contention. For married couples opting to file jointly, Tax Day presents an opportunity to pool incomes and deductions, potentially unlocking tax-saving benefits. Joint filing typically entitles couples to a larger Standard Deduction, effectively reducing their taxable income—a generous $27,700 for most couples under age 65 in 2023, ascending to $29,200 in 2024. Filing together also opens doors to eligibility for various tax breaks, such as IRA contributions and education credits. 

Conversely, choosing to file separately may result in higher taxes, particularly if only one spouse has taxable income. There are a few reasons why you might decide to file separately:, protecting a spouse's tax return, high combined income could prevent you from certain deductions, and finally any liability either spouse brought into the marriage might be better filed separately (i.e. child support on the refund). It's a delicate balancing act that requires careful consideration of each couple's unique financial circumstances.

What if you have a 1099 and a W-2?

Some individuals could have earned both traditional employment income (represented by a W-2) and self-employment/contractor income (represented by a 1099). Both 1099 and W2 income must be reported on your 1040 Form. Depending on your scenario for self employment, the 1099 can open up certain deductions. However, a 1099 is paid without any taxes withheld, so when filing, there is a strong likelihood that you will owe those taxes. 

What if you owe?

For individuals who find themselves facing a tax bill, it can be a stressful experience. Someone could owe taxes from 1099 employment or under-withholding from your W2 employment. That tax bill is due at the time of filing, so you’ll want to pay by April 15th. However, you may also be eligible for a payment plan if you are unable to pay at once. 

Finding that you owe is a good time to revisit your withholding per pay period. You can always update your W-4 withholding form or state withholding form to avoid a situation where you owe the following year. For 1099 employees, the IRS offers ways to send in estimated payments throughout the year and use their tax calculator to prevent large payments on Tax Day.

What does a refund really mean?

On the flip side, receiving a tax refund can feel like a financial windfall for many individuals. But what does a refund really mean? While it may seem like free money, a refund is simply an overpayment of taxes throughout the year. The federal or state government is refunding you for the money they withheld because it was more than you owed for the year. The same way you might review withholdings when you owe, it can also be a good time to review when you get a refund. Adjusting your withholding can help prevent overpayment in the future and put more money back in your pocket throughout the year. 

Does everyone have to file? 

Not everyone needs to file a tax return. But most U.S. citizens or permanent residents who work in the U.S. have to file a tax return. Most folks need to file if they meet certain thresholds. If your gross income is over the filing requirement, you are expected to file. Did you have over $400 in net earnings from self-employment or other independent work? You’ll need to file a tax return.  If you have any questions about whether you should file or not, the IRS offers a quick walkthrough to see if you should file. 

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Sources

https://www.checkhq.com/post/review-your-w-4-to-optimize-your-paycheck

https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return