When you receive your IRS W-2 form each year from your employer, box 2, "Federal income tax withheld," shows the amount of tax money your employer deducted from your pay and sent to the IRS to cover the income taxes you owe. It's basically a savings account to cover your tax liability. The amount you get back depends on factors such as the amount of actual taxable income you had for the year, your assessed taxes and whether you had the right amount of taxes withheld to cover that amount.
A W-2 is only part of the bigger picture when calculating your taxes.Your W-2 will be factored alongside a variety of other important parameters, including qualifying credits, deductions and expenses, when determining the amount of money you will get back on your annual tax return.
Starting Your Federal Income Tax Return
You'll need to complete IRS Form 1040EZ, 1040 or 1040A to determine the final amount of your withheld taxes you'll get back, if any. You may also have tax money coming from your state, and need to file a state income tax return to get any overpayment of your taxes back. It is worth noting, that for the 2019 tax season, the IRS plans to release a new, more streamlined Form 1040. You can find more information on the agency's website.
Factoring Gross Income
You'll see your total annual income on your W-2, box 1 "Wages, tips, other compensation." This is the total pay you received for the year from your employer, and it's the amount you would enter on line 7, in the "Income" section of IRS Form 1040. In this section, you'll enter any other forms of income you receive, such as dividends, capital gains, alimony or unemployment income.
Adjustments That Change Your Income
As you work through your income tax return, enter any income adjustments such as pre-tax payments made into your Individual Retirement Arrangement (IRA), a health savings account, or student loan interest you paid during the year. When you finish this section, you'll arrive at your Adjusted Gross Income (AGI).
Taxes, Credits and Deductions
Now it's time to add up any tax deductions you're eligible for, such as medical bills that exceed 7.5 percent of your AGI, if you're filing taxes for the 2017 and 2018 tax years. If you choose to itemize actual expenses you've paid during the year, you must come up with at least enough expenses to meet the IRS standard deduction. Otherwise, just take the standard deduction and save yourself the effort.
If you're single or married but filing separately, you can take a standard deduction of $6,350 for tax year 2017. Married couples filing jointly and qualifying widow/ers can take a $12,700 standard deduction, and those filing as Head of Household get a $9,350 standard deduction. However, for 2018, standard deduction amounts have greatly increased to $12,000 for single or married filing separately filers, $18,000 for those filing head of household, $24,000 for married filing jointly and qualifying widow/ers. Now, you can add any tax credits you qualify for such as the Child tax credit, Education credit or a credit for after-tax money you contributed to a retirement plan. Finally, use the IRS tax tables in the Form 1040 instruction booklet to figure out the actual tax amount you owe.
I Have My W-2, How Much Will I Get Back?
The number of withholding allowances you claim for your paycheck plays an important part in the amount you'll get back on your taxes. The more withholding allowances you choose when filling out IRS Form W-4 for your employer, the less income taxes your employer withholds from your paycheck. This gives you more cash upfront but could hurt you at tax time if you didn't have enough money withheld to cover the income taxes you owe. From your Form W-2, take the amount in box 2 and enter it on your tax form on the appropriate line in the payments section. Do the subtraction to find out the amount you get back from the taxes withheld and shown on your W-2 form.
Adjusting Your Withholding
If you need to adjust the amount of tax money you have withheld from your paycheck, you can fill out the worksheet for Form W-4 to find the right number of allowances to claim. If you've already done this and want to further refine the amount of tax money withheld, you can either ask your employer's payroll personnel to help you refine the calculation based on your specific needs, or use the IRS Withholding Calculator on the IRS' website.
- IRS: Withholding Calculator
- Forbes: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- IRS: IRS Working on a New Form 1040 for 2019 Tax Season
- Internal Revenue Service. "About Form W-4, Employee's Withholding Certificate." Accessed Jan. 27, 2020.
- Internal Revenue Service. "FAQs on the 2020 Form W-4." Accessed March 12, 2020.
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- Internal Revenue Service. "Form W-4 (2019)," Page 1. Accessed Jan. 24, 2020.
- Internal Revenue Service. "W-4 Employee's Withholding Certificate," Page 1. Accessed Jan. 29, 2020.
- United States Congress. "H.R. 1 -- An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018." Accessed Jan. 27, 2020.
- Internal Revenue Service. "W-4 Employee's Withholding Certificate," Pages 1–4. Accessed Jan. 29, 2020.
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- Internal Revenue Service. "Here's What Taxpayers do When They Have to File a New W-4." Accessed Jan. 27, 2020.
- Internal Revenue Service. "Publication 505 (2019), Tax Withholding and Estimated Tax." Accessed March 12, 2020.
Cynthia Gaffney has spent over 20 years in finance with experience in valuation, corporate financial planning, mergers & acquisitions consulting and small business ownership. She has worked as a financial writer for online finance publications since 2011, including eHow Money, The Motley Fool, and Sapling.com. She has also edited for several online finance publications, including The Balance, Opposing Views:Money, Synonym:Money, and Zacks.com. A Southern California native, Cynthia received her Bachelor of Science degree in finance and business economics from USC.