Now that we are in the new year, many U.S. taxpayers are eager to get their 2011 tax returns out of the way.  Throughout the month of January, you should receive important tax documents related to income of all kinds.  Most American workers are waiting on IRS Form W-2.  In this article, learn when to expect this form and what to do if you’re missing your 2011 Form W-2 after a certain date.

When Should You Get Your 2011 Form W-2?

Unfortunately for anyone eager to file a 2011 tax return, the IRS gives employers until January 31, 2012 to give employees their 2011 W-2s.  Where they used to always be mailed or hand-delivered in the office, companies now have the option of making the forms available electronically by the January 31st deadline instead.

What if You’re Missing 2011 Form W-2 after January 31st?

If you haven’t received your W-2 by January 31^st, you have some options.  If you don’t think you ever received it, first call your employer to check on its status.  It’s very possible that your W-2 has been mailed, but you just haven’t received it yet.  It’s also possible the accountants goofed up or simply made a mistake by not sending you a W-2.  This, of course, is not allowable, but human error is always a possibility.  Another explanation is that your employer doesn’t have your current address on file.  Make sure that is correct.

You may also want to double-check that your W-2 isn’t being provided through a secure online portal.  Retrieving it could be as simple as logging on to the company website or other secure portal and downloading it to your computer.  Even if your company provided paper forms last year, the switch could have been made to electronic delivery, and you may have simply forgotten about the change (or perhaps an announcement was never made).

How to Get a Replacement W-2 Form for 2011

If you are sure you received your 2011 W-2, but have since lost it, the first place you should turn to is your company’s accounting department.  They should be able to issue you a replacement.

If, for some reason, you cannot get a replacement 2011 W-2 from your company in a timely manner, you can contact the IRS as a last resort.  The IRS suggests waiting until mid-February to do so.  That’s because the information your employer can be provide will be the most accurate information available and your W-2 may simply be delayed for some of the reasons mentioned above.

Form 4852 – Substitute for Form W-2, Wage and Tax Statement (or for Form 1099-R)

There is a substitute form (IRS Form 4852) you can file along with your personal tax return instead of an actual W-2.  Before you file Form 4852, you should call the IRS at 1-800-829-1040.  Be prepared to provide quite a bit of personal identifying information as well as mailing information for your employer.  The IRS will send a letter to your employer.

Want to File a Personal Tax Return, but Still Missing Your 2011 Form W-2?

You should continue to request a replacement W-2 from your employer until you get one; however, if you cannot get one before it’s time to file your federal tax return, then use Form 4852 as a replacement, filling it in to the best of your knowledge, using check stubs or other paycheck information to gather totals.  If you actually receive the official W-2 from your employer at a later date, make sure to compare it to what you reported on your return.  If the amounts don’t match, you will need to file an amended individual return to correct the error(s).

Related Video:

Want a quicker explanation of everything covered in this article?  Check out the IRS YouTube video on the subject.

In 2011, American taxpayers enjoyed a temporary reduction in Social Security taxes.  For what was supposed to be one year only, taxpayers only paid 4.2% in payroll taxes, a 2% reduction from the normal 6.2% rate. 

But just before that tax break was about to expire, Congress passed a last-minute short-term extension.  The payroll tax cut no longer expires on December 31, 2011 – it is now good through February 29, 2012.  It is estimated that approximately 160 million United States taxpayers will benefit from this stimulus measure.    

Extended Payroll Tax Holiday – Who Qualifies for Lower Social Security Taxes?  And Exactly How Much?

Everyone who pays Social Security taxes is eligible for this tax break.  In IRS Newswire Issue Number IR-2011-124, the IRS included confusing language about a “recapture” provision for high income taxpayers included in the extender bill.  I won’t go into that here, but if you are so inclined, you might want to read about in my post Confused by the “Recapture” Provision of the Temporary Payroll Tax Cut Continuation Act of 2011?  Me, Too! 

In a nutshell, if you make less than $110,100 in 2012, you will receive the Social Security tax cut.  As noted on the White House blog, this equates to roughly $40 bi-weekly for someone making $50,000 per year. 

In other words, you would get to keep an extra $1,000 on a salary of $50,000 per year ($50,000 x 2% = $1,000).  This means an extra $19.23 per week.  Someone making $75,000 per year would keep an extra $1,500 total, and someone making $100,000 per year would keep an extra $2,000 total.    

2012 Temporary Social Security Tax Cut Details – Actual Text of the Bill

The 2% Social Security tax cut extension is included in the Temporary Payroll Tax Cut Continuation Act of 2011, or H.R. 3765.  The actual text of H.R. 3765 can be retrieved from the Library of Congress (see preceding link).

2012 Employee Payroll Taxes – Lower Social Security Tax Withholding, Not a Tax Credit

The responsibility of implementing (or continuing) the 2012 payroll tax holiday falls on employers.  Instead of withholding 6.2% for Social Security, employers should only withhold 4.2% from employee paychecks.  As such, employees should keep in mind that this tax break will come in the form of more take-home pay, not a tax credit on a 2012 tax return. 

Due to the last-minute nature of this extender bill, employers have until January 31, 2012 to implement the necessary system changes to withhold the proper amount of payroll taxes.  However, any incorrectly withheld taxes due to late implementation must be corrected by March 31, 2012. 

Employees need not do anything to effect the change unless they suspect the incorrect is being withheld from their paychecks, keeping in mind that companies have until January 31, 2012 to implement the changes and until March 31, 2012 to credit back any incorrect withholding.

Obama to Congress: Don’t Let Social Security Tax Rates Revert Back in March 2012

Because the payroll tax holiday is only temporarily extended through the end of February 2012, the American public can expect another debate to ensue shortly over whether the extension should be continued through the end of 2012.  President Obama is pushing for the full year extension, but in an election year, things like this aren’t very predictable. 

The government granted this tax relief with the promise that future Social Security won’t be impacted as a result; however, the 2% break comes directly from the funds that would have otherwise been collected to fund Social Security.  If this tax cut is continually extended, it will add to an already contentious debate over what to do about the future of Social Security. 

Keeping that in mind, and weighing it against the fact that 2012 is an election year, it really is anyone’s guess as to whether this tax cut will be extended again.     

Sources:

• Congress Passes Two-Month U.S. Payroll Tax Cut Extension by Laura Litvan and Greg Giroux. Retrieved from Bloomberg.com on 12.23.11.
• Obama Signs Payroll Tax Cut Extension by Alan Silverlieb. Retrieved from cnn.com on 12.23.11.
• Payroll Tax Cut Temporarily Extended into 2012 (IR-2011-124).  Retrieved from irs.gov on 12.23.11.
• The Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765). 

Pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011 (or H.R. 3765), American taxpayers will receive continued tax relief in the form of lower Social Security tax withholding for the first two months of 2012.  This is an extension of a temporary tax law that was in effect throughout 2011.

The Confusing “Recapture” Provision

The extension bill, however, includes a confusing provision about the implementation of the tax break with regard to higher income taxpayers.  Furthermore, IRS Newswire Issue Number IR-2011-124, included an equally confusing explanation of the ”recapture” provision included in the extender bill.  This is how it reads:

“Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount.).  This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).”

What the heck?!!  I read tax laws all the time, but even I thought this explanation was especially confusing.  It sounds like high income taxpayers have to pay a 2% penalty on any income over $110,100 for the year.  But that doesn’t make sense unless that’s how Congress expects to fund the tax break for everyone else.   That paragraph was worded so oddly, I had to go elsewhere for further clarification.

Luckily, I found an explanation on the Journal of Accountancy website (a reputable source of information) that matches my own interpretation.  So, in plain terms, here is what I think that confusing paragraph above really says, along with background info to put it all in perspective.

2012 Social Security Income Cap and the Recapture Provision

A little background:  United States Social Security taxes are only imposed up to a certain level of income.  For 2012, the cap is $110,100.   This means that Americans only pay Social Security taxes on income up to $110,100 in 2012.

Knowing that, the “recapture” provision must be Congress’ way of saying “anyone who makes over $110,100 per year (or $18,350 over the course of two months) doesn’t get a Social Security tax cut on wages exceeding those amounts because they wouldn’t have to pay Social Security taxes on the excess anyway.”  In other words, high income taxpayers must pay back any excess benefit received due to the payroll tax cut.

According to the Journal of Accountancy, the law was written this way to keep things simple for employers – they simply apply the tax cut across the board and the burden of reimbursing the federal government for any excess tax benefit falls on the high income employees’ shoulders.  It actually seems more complicated to me this way, but I have never been asked to draft a tax bill before.  ;)

Sources:

• Congress Passes Temporary Payroll Tax Cut Extension.  Retrieved from journalofaccountancy.com on December 24, 2011.
• Payroll Tax Cut Temporarily Extended into 2012 (IR-2011-124).  Retrieved from irs.gov on December 23, 2011.
• The Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765).

I get random questions throughout tax season that don’t necessarily warrant a lengthy explanation, so instead of writing separate posts to address each one, I am going to post the questions and simple answers on this page.

Questions about Personal Income Tax Returns and Related Issues

Q: I lost my W-2.  How do I get a replacement?

A: Your employer issued your original W-2, so that’s where you should look for a replacement form.  You may have more than one option for recovering a lost w-2.  The first should be to call your company’s payroll or tax department and ask that a replacement W-2 form be sent to you.  In the meantime, if you are trying to prepare your initial return and simply want a particular amount off the form (like total wages reported in box 1 or federal income tax withheld), then your company representative may be able to give you that information over the phone.  Your second option could be downloading a replacement W-2 from the company website.  These days, tax forms are often provided for your convenience through a secure online portal, and you may be able to pull up the necessary information that way.

A question I often get asked in early December is this – can I file my taxes now or do I have to wait until the first of the year?  It’s a logical question and one I wish I could give a more popular answer to, but the answer is no – you should not file your taxes before the year has ended.

Why Can’t You File Taxes Early in December?

You shouldn’t file your taxes before year end for two reasons:

1. You can’t be 100% sure you won’t receive any more taxable income before the year is over.
2. The IRS can’t process returns that early.

The United States has a self-reporting tax filing system, which means that Americans are asked to honestly report all income earned for the year on their annual income tax returns.  If you don’t wait until the year is over before you sum up your earnings, it has the appearance of being deceiptful.  How can you be sure on December 10^th that you won’t receive any other taxable income before year end?  You can’t, really.  Sure, some people could argue that they are on fixed incomes and definitely won’t receive more income for the year.  But if the IRS started making exceptions for some people, then everyone would want to join in.

Earliest Date to File Taxes – 2011 Tax Returns

The IRS will begin accepting 2011 tax returns on Tuesday, January 17, 2012.  If you mail your return before then, it will be held until that time.  If you file electronically before that date (with a service like TurboTax or H&R Block), it will be held for processing until that date.

What is the Last Day to File Your 2011 Tax Return?

Individual 2011 tax returns should either be filed or extended by April  15, 2012.  In the case of extension, you will get six months to file your extended tax return, or until October 15, 2012.

Getting a Head Start in December

Just because you can’t file your tax return in December with a clear conscience, that doesn’t mean you can’t get a head start on gathering necessary documentation.  You won’t begin receiving 2011 W-2s and 1099s until January, after companies have time to compile accurate tax information for those forms; however, you can sit down and review your prior year return for other information you may need.

For instance, do you have all receipts to document charitable contributions?  Do you have the Social Security Numbers for any new dependents?  If you are eligible for any new tax credits, do you know the relevant details you will need in order to claim them?  If you itemize on Schedule A, can you go ahead and print out expense documentation such as property taxes already paid for the year?  You get the idea.

If you have a properly maintained file for your prior year’s tax return, take out that return’s documentation and try to compile an identical stack of papers for the current year, with the exception of the documents you are waiting to receive from an employer.  When those W-2s and 1099s do come in January, you will ready to go!

I recently wrote about the forthcoming IRS Registered Tax Return Preparer (RTRP) competency test on Taxes and Stuff.

I promised that the Registered Tax Return Preparer competency test would be available in October 2011.  Only a month behind schedule, the IRS announced that the competency examination is available as of the end of November.  :)

Well, now everyone wants to know – exactly how many questions will the test include, where do we take it, and how do you study for it?  Read on for answers to these and other questions.

What Will the IRS Registered Tax Return Preparer Competency Test Be Like?

The competency exam will include 120 questions with an estimated completion time of 2.5 hours. The exam’s focus will be Form 1040 and related schedules, but the test will also include an ethics portion.

How Should You Study for the RTRP Exam?

You can fork over some cash for a study guide, but you should know that since no one has taken the test yet, the study guides are just educated guesses for now.

On its website, the IRS broadly lists forms and publications recommended for review, but it also goes one step further and clarifies the types of knowledge test takers will be expected to have.  While not all-inclusive, these IRS test specifications would be a good starting point for any prospective examinee.  I would recommend becoming familiar with all the items on this list before even thinking about sitting for the exam.  I’d wager that a firm grasp of this knowledge alone will either get you a passing grade or very close to it.

If you don’t want to purchase one of the many study guides available online, the test specifications cheat sheet, along with a thorough review of the recommended forms, instructions, and publications, may be enough to help you pass the exam.

Here are links to both resources again for easy reference:

• List of IRS Materials to Study
• IRS Test Specifications

Never Taken a Prometric Exam Before?  Here’s a Sample Test Experience

Prometric administeres computer-based exams.  Testing center exam stations aren’t all that different from what you would see at the DMV.  If you want to get a feel for what you will be looking at on screen,  you can test-drive the general Prometric exam experience online.

The following link takes you to a sample test that helps you visualize what you will see at the testing center (how to scroll from page to page, how the questions are explained, etc).  It doesn’t give away any hints, however.  The sample questions are, “What color is the sky,” for example.

Prometric Testing Experience Example

How Much Does the Registered Tax Return Preparer Test Cost?

The fee for the exam is $116.  Part of the fee goes to the IRS; part of it goes to Prometric.

Where Can You Take the Test?

According to the IRS, it will eventually roll out the test to all of Prometric’s U.S. testing centers, but it isn’t currently clear when that will happen.  For now, it is only available at certain locations.  You must search on the Prometric site to find out the closest one to you.

Currently, you cannot register for a test until you register for a PTIN (a Preparer Tax Identification Number), so that should be your first step.  You can register online or by filing IRS Form W-12, IRS Paid Preparer Tax Identification Number.

What is the Deadline to Pass the Exam?

Current PTIN holders have until December 31, 2013 to pass the exam.  That seems like a long time; however, don’t forget that you will likely have to pay the $116 exam fee each and every time you take the test, so the timeframe really is irrelevant unless you have buckets of cash on hand.

New IRS Preparer Requirements Will Continue to Evolve

The IRS is taking its time to perfect the requirements for RTRPs before rolling out each step.  It started with PTIN applications required for fee-based 2011 tax return preparation and now includes testing for certain individuals.  Coming soon are continuing education requirements and background checks for some applicants.

Here are a couple of things to keep in mind about pending IRS preparer requirements:

• Registered Tax Return Preparers may be subject to future background check requirements, including fingerprinting.
• Anyone not specifically exempted from continuing education (CE) requirements (explained here) will have to obtain 15 hours of CE annually.  This will include 2 hours of ethics, 3 hours of federal tax law updates, and 10 hours of other federal tax law courses.

For information about the new IRS tax preparer requirements, see these related articles:

IRS PTIN Registration – Who Needs a Preparer Tax ID Number? – A more in-depth look at who is and isn’t required to get a PTIN.

New IRS Tax Preparer Requirements – A little bit of background info and explanation of why the IRS believes PTINs are necessary.

Accounting nerds look no further – a word search on the subject of taxes and accounting is here!  In this financial word search, you will look for words like “account” and “dependent.”  The word “spreadsheet” even makes an appearance!  :)

Feel free to share this file as you see fit.  It would make a corny office meeting icebreaker or co-worker birthday gift.  Heck, you could even post it outside your cubicle and ask everyone to circle one word each time they pass by. The uses are limitless!

Download the Taxes and Accounting Word Search (PDF format)

As I was brainstorming blog post topics this evening, debating on how deeply I want to expose my family’s finances and how detailed I want to be with money-saving advice (i.e. how frugal to get), I came across a hilarious 2-minute video from Ramit Sethi of I Will Teach You To Be Rich.

It’s a spot-on satire of extreme money-saving ideas.  Some of these ideas aren’t far from tactics my mom uses, ones I was considering profiling on the blog.  Perhaps I shouldn’t, lest I get made fun of!

Watch Let’s Get Rich Bitch! on YouTube

**Update: The IRS rolled out the new testing requirement in late November 2011.  Read more about the RTRP exam in this post.**

Last year, the IRS rolled out new requirements for tax return preparers effective as of January 1, 2011.  Anyone who wanted to prepare a tax return for compensation after 1/1/11 was required to register for a Preparer Tax Identification Number, or PTIN.  When the PTIN rules first went into effect, all you had to do to obtain one was register and pay the fee.

Beginning October 2011, certain categories of registered tax return preparers must also pass a competency test in order to obtain a PTIN.  In the coming months, they will also be required to obtain continuing education hours annually.

Who is Exempt from Taking the IRS Registered Tax Return Preparer Competency Exam?

Only certain professionals who otherwise must adhere to stringent continuing education requirements (likes CPAs and attorneys) or those who don’t actually make any tax liability judgment calls on individual tax returns are exempt from testing requirements.

This includes the following people:

1. Attorneys
2. Certified Public Accountants
3. Enrolled Agents
4. Enrolled Retirement Plan Agents
5. Enrolled Actuaries
6. Supervised Preparers
7. Non-1040 Preparers

All but two of these are self-explanatory.  A supervised preparer is someone who works on a tax return, but doesn’t make any determinations related to tax liability and eventually turns the work over to an actual PTIN holder for review and signature.  Non-1040 preparers are exactly that – people who don’t actually prepare any individual returns (with the exception of 1040-PR and 1040-SS).

IRS Testing Center Locations – Where to Take the Registered Tax Return Preparer Competency Test

The IRS hasn’t officially listed testing centers, but it has announced the Prometric will administer the tests.  Candidates may also be required to provide fingerprints for background testing.  Once testing goes live, you will be able to search available testing center locations from the Prometric website upon registration.

Assuming the test scheduling process for Registered Tax Return Preparers works the same as it does for IRS Enrolled Agents, candidates will have to register with Prometric in order to schedule a test.

How to Prepare for the Registered Tax Return Preparer Certification Test

The IRS does not offer a study guide, but there is a list of recommended study materials.  As the PTIN is designed to indicate a person has a minimum competency level in individual tax return preparation and filing, the recommended study materials are all related to individual taxes and e-filing (the IRS’s preferred method of filing).

• Form 1040 and instructions
• Publication 17: Your Federal Income Tax
• Circular 230: Regulations Governing Practice Before the IRS
• Publication 334: Tax Guide for Small Business
• Publication 970: Tax Benefits for Education
• Publication 1345: Handbook for Authorized IRS e-file Providers
• Form 6251 and instructions (Alternative Minimum Tax – Individuals)
• Form 8879: IRS e-file Signature Authorization
• Publication 596: Earned Income Credit

Keep in mind that the version of Publication 17 currently available contains many notes about tax provisions that had not been finalized when the publication was published.  As such, as you are reviewing that publication, you should also have a copy of this reference page out to help you determine the availability of certain tax benefits.

It is recommended that you study the most recent version of all forms, related instructions, and publications.  Note that until approximately November/December of any given year, all that is available is the prior year’s forms, publications, and filing information.  That’s when the IRS typically makes the current year’s forms available in time for filing season.

Important Facts About PTIN Requirements – Who Needs One? How Much Does It Cost?

There is a litmus test for helping you determine if you are required to obtain a PTIN:  Basically, if you make any decisions regarding an individual’s tax liability (whether or not you sign the return), you are a tax preparer subject to these requirements.

Other PTIN requirement facts:

• Every preparer needs one – no sharing among office personnel.
• If all you do is work on your company’s taxes (as in corporate tax department personnel), you don’t need a PTIN for that purpose.
• If you help someone prepare a refund claim, you must be registered.
• How much does it cost?  $64.25 annually  :(

Related articles and links related to the new IRS tax preparer requirements:

IRS PTIN Registration – Who Needs a Preparer Tax ID Number? – A more in-depth look at who is and isn’t required to get a PTIN.

New IRS Tax Preparer Requirements – A little bit of background info and explanation of why the IRS believes PTINs are necessary.

Online PTIN Application – Link to the IRS website.

Another Way to Access Obama’s New Jobs Bill

The jobs bill text is also posted on the White House website.  Not every bill has the fortune of being featured on whitehouse.gov, but this one is controversial enough to make the cut.  :)

Related article:

Obama’s New Tax & Jobs Stimulus Plan – Learn about the major provisions of the American Jobs Act of 2011, particularly the payroll tax holiday and credit for companies and the temporary payroll tax relief for individuals.