If you've had too much withheld from your paycheck during the year, you're in for a refund when you file your taxes. However, though your W-2 is a good start for figuring how much you'll get back -- or owe -- on your taxes, it's usually not the only piece of information you need to do your taxes.
Your W-2 tells you the income you earned from your job as well as the amounts your employer withheld for federal income taxes, which are two very important pieces of information for figuring your tax refund. However, even if your W-2 is your only source of income and you're not claiming any extra deductions or credits, you still need to know the standard deduction and personal exemption amounts plus the tax brackets for your filing status. You can find those in IRS Publication 17.
Figuring your taxes requires knowing all of your income for the year. Your W-2 doesn't always include all your income -- you might have income from interest, dividends, selling investments, or working as an independent contractor. For example, say that besides your $49,000 from your job, you also have $250 of interest income and you sold stocks during the year for a $2,750 profit. That's an extra $3,000 in taxable income. If you're in the 15 percent tax bracket, that's an extra $450 of taxes you owe -- which would turn a $150 refund into a $300 tax bill.
Your W-2 also doesn't list all the deductions you might be eligible to claim on your taxes. The more deductions you're eligible to claim, the bigger your tax refund. For example, say that you made a $5,000 deductible contribution to your traditional IRA -- which is a deduction you can claim without itemizing. If you're in the 15 percent tax bracket, that $5,000 deduction -- which isn't on your W-2 -- would boost your tax refund, or at least lower your bill, by $750.
Your W-2 certainly doesn't include any of the tax credits you might be eligible to claim. Credits are split into two categories: refundable credits and nonrefundable credits, with the difference being that nonrefundable credits can only reduce your tax liability. For example, say your tax bill before your withholding is $1,600. If you have a $2,000 nonrefundable credit, it will lower your tax bill to zero, but you wouldn't receive the difference. If that credit was refundable, it would lower your liability to zero and give you an extra $400 on your refund.
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