Payments Objectives Payments Identify the following types of

Payments

Objectives – Payments • Identify the following types of payments and credits • Federal income tax withheld, from Forms W-2 and Forms 1099 • Estimated tax payments and amounts applied from the prior year’s return • Amount paid with a request for an extension to file • Excess Social Security and tier 1 RRTA tax withheld • Report these payments and credits correctly on the taxpayer’s return Payments 2

Topics • Federal Income Tax Withheld • Estimated Tax Payments • Amounts Applied From Previous Year • Payments and Extensions • Excess Social Security and Tier 1 RRTA Payments 3

Key Terms • Refundable Credit-The amount of the credit is greater than the tax owed. Taxpayers receive a refund of excess credit • RRTA-Railroad Retirement Tax Act. Tier 1 RRT is equivalent to Social Security wages and benefit amounts • Withholding Tax-income tax withheld from the pay of employees. Income tax can also be withheld from gambling winnings, pensions/annuities, unemployment compensation, and certain federal payments such as Social Security. Payments 4

Federal Income Tax Withheld • The total federal income tax withheld is entered in the Payments section of Form 1040, line 64 • See Pub 505, Tax Withholding and Estimated Tax, for more information • Forms that show much tax is withheld: • Forms W-2, W-2 G, 1099 • Use IRS Tax Calculator to determine • If additional tax withholding Payments 5

Estimated Tax Payments • Estimated tax includes income tax and self-employment tax • If estimated payments are not paid when required, or amounts are insufficient, a penalty could be imposed • For more information about estimated taxes, refer to Form 1040 -ES • Taxpayers who have income from sources that do not withhold federal tax may be required to pay estimated taxes. Examples are income from self-employment, dividends, interest Payments 6

Amounts Applied from Previous Year • Taxpayers who overpay income taxes for one tax year can apply all or part of their refund to next year’s tax • Add the amount to the estimated tax payments and enter the total on Form 1040, line 65 Payments 7

Payments and Extensions • Form 4868, Application for Automatic Extension of Time To File U. S. Individual Income Tax Return, extends the time to file until Oct. 15; Caution: This does not include an extension of time to pay. • An extension must be filed electronically or on paper by the due date of the return • If taxes due are not paid by April 15, taxpayers may owe interest and penalties Lesson 28 – Payments 8

Excess Social Security and Tier 1 RRTA • A taxpayer with more than one employer may have a combined income over the amount for the Social Security wage base, ($127, 200) • resulting in overpayment of Social Security tax • The excess amount is entered in the Payments section of Form 1040, line 71, and is a refundable credit Payments 9

Social Security Example • In 2017, John earned a salary of $140, 000 from her employer. His FICA taxes withheld are $7, 886. 40 ($127, 200 x 6. 2%) plus $2, 030 ($140, 000 x 1. 45%) for a total of $9, 916. 40. • Additionally John’s employer must also pay $9, 916. 40 (F. 940/F. 941). Payments 10

Excess FICA Taxes Withheld Example • During 2017, Richard changed employers in the middle of the year and earned $67, 500 (all of which is subject to FICA) from each job. Each employer withheld $5, 163. 75 ($67, 500 x 6. 2%) + (1. 45% x $67, 500) for a total of $10, 327. 50. • Each employer properly withheld and reported Richards’s FICA tax liability. However, Richard overpaid his share of FICA taxes by $483. 60, ($10, 327. 50 paid - $9, 843. 90 amount of correct liability). Richard can claim this amount of a tax credit on Form 1040, Line 71 -Excess social security and tier 1 RRTA tax withheld. Payments 11

Summary This lesson covered: • How to identify the types of payments and refundable credits that should be entered in the Payments section of the return • How to handle estimated tax payments and overpayment amounts applied from the prior year’s return Payments 12

Skills Quiz 1. Federal income tax withheld is reported to taxpayers on all the following forms: Forms 1099, Form W-2, Form W-4, Forms RRB-1099, and SSA-1099. True or False? 2. If a taxpayer receives several Forms W-2 and 1099, then the amount of income tax withheld reported on the return is the total of all income tax withheld from all the Forms W-2 and all Forms 1099. True or False? 3. The amount of tax due and paid with this year's tax return qualifies as an estimated payment. True or False ? Payments 13

Skills Quiz 1. Federal income tax withheld is reported to taxpayers on all the following forms: Forms 1099, Form W-2, Form W-4, Forms RRB-1099, and SSA-1099. The correct answer is False. Tax withheld is not reported to Taxpayers on Form W-4, instead Taxpayers indicate tax withholding and additional tax withholding on Form W-4. 2. If a taxpayer receives several Forms W-2 and 1099, then the amount of income tax withheld reported on the return is the total of all income tax withheld from all the Forms W-2 and all Forms 1099. The correct answer is True. 3. The amount of tax due and paid with this year's tax return qualifies as an estimated payment. False is Correct. The amount paid with the return is not included with estimated payments. Estimated tax payments include (1) payments already made during the tax year using Form 1040 ES or (2) an overpayment shown on last year's tax return that the taxpayer applied to the current year. Payments 14