New to the workforce? Congrats! A new role comes with both new freedoms and responsibilities. If you understand the tax implications of your job and the income that comes with it, you’ll feel better prepared at tax time – plus, you can learn how to reduce your tax bill and get your biggest refund possible.
Here are 5 tax tips to keep in mind as you start your first job.
1. Complete Form W-4
Form W-4 is an Employee’s Withholding Certificate. This form is used to withhold federal income tax from your pay. If too little is withheld, you will most likely owe taxes when you file and may even owe a penalty. You can use this IRS tax withholding estimator to ensure you have an adequate amount being withheld and can complete your W-4 correctly.
As time goes on, if your personal or financial situation changes, be sure to update your W-4. Life events like having a baby or getting married can affect how much you need to withhold.
If you’re an independent contractor, freelancer, or self-employed, you most likely don’t have taxes withheld from your paychecks. If this is the case, you should make estimated quarterly tax payments based on your estimated annual tax liability, so you don’t owe one lump sum when you file. See more about estimated quarterly tax payments here.
2. See how your income is reported
You will receive a Form W-2 or Form 1099 depending on the nature of your role. You’ll receive a W-2 if you’re a traditional employee and a 1099 if you’re an independent contractor, freelancer, or own your own business.
These forms will be distributed to you electronically or by mail during the first part of each year, so be on the lookout in January. Once you receive your W-2 or 1099, you can start your return.
3. Keep your tax forms in a safe place
Along with W-2s and 1099s, you may receive forms for education expenses, interest, certain government payments, etc. Be sure to hold on to all the tax forms you receive throughout the year. When the time comes to file, you’ll have them all on hand to file as efficiently as possible.
When you file with TaxSlayer, you’ll be guided through your entire return and will be asked about each of the forms you’ve received so you don’t miss anything.
4. Maximize your refund with tax deductions and credits
Tax deductions are subtracted from your yearly income. You can choose to itemize your deductions or take the standard deduction. See more on tax credits and deductions here.
Tax credits are subtracted from the taxes you owe (if any). Some tax credits are refundable, meaning they can be added to your refund if you don’t owe any taxes or if the credit brings your tax bill down to zero. In other words, if a refundable tax credit eliminates the taxes you owe, and there’s some credit left over, you will receive it in your tax refund.
5. File a simple return for free
If you have a simple tax situation, you can file a federal and state return for $0 with TaxSlayer Simply Free. The student loan interest deduction and education credits are included. Many first-time filers qualify to file for free. Get started today!
The information in this article is up to date through tax year 2021 (taxes filed 2022).