Contributed by: CoryF, FreeTaxUSA Agent, Tax Pro
Congratulations on Your New Job!
As you change jobs, understanding the tax implications will help you avoid some common tax mishaps. Make sure that you know how to handle the following tax items with your employer:
- Properly completing your W-4
- Receiving tax forms
- Taking full advantage of your employer’s tax beneficial benefits
- Have withholding for all states where you may need to file a return
The Form W-4
Filing your new W-4 so that you have enough taxes paid is one of (if not) the most important things to do when you get a new job. We recommend you use the IRS Withholding Calculator to estimate how much more withholding you should add to your W-4 with your new job. It’s actually okay to change your W-4 multiple times a year depending on your circumstances. The calculator will outline what you need to withhold and might allow you to have less taken out of your paychecks for federal tax withholding.
Tax Forms and Moving
Employers and financial institutions are required to mail out tax forms by the end of January. These can include W-2 forms, a 1099-SA for health insurance, and a 5498 for retirement contributions. Other forms would be a 1099-R for retirement distributions, a 1099-INT and 1099-DIV from banks and investments. There are many other forms you may get. If you moved, make sure you update your mailing address with your employer, retirement administrator, banks, etc. Putting in a change of address with the USPS will ensure your forms get to you. The USPS will forward important mail for 18 months.
Retirement
Retirement contributions are another critical item to handle when making this new transition. There’s a limit to how much you can contribute to the major types of retirement savings within employment. Take a look at how much you’ve contributed at your previous employment and communicate that to the administrator of retirement savings at your new job to ensure you don’t overcontribute.
State Withholdings
The last item that may have implications is if the new job is working for an out-of-state employer. You’ll need to know whether your income is taxable in the other state, and whether the out of state employer will be withholding taxes in that state. If you’re a full-time resident of your current state, you’ll owe taxes in your resident state on the full amount of income that you earn in the nonresident state. If your income is not taxable in the nonresident state, your new employer may have the ability to withhold taxes from your resident state to prevent you from owing resident state taxes at tax time. If the income is taxable in the nonresident state and your resident state, you may claim a credit for the taxes paid to the nonresident state on the tax return for your resident state. That credit should alleviate the double state taxes on the income that is reported as taxable on two returns.
Conclusion
Remember, the most important thing you need to take care of with a new job is your W-4 for federal taxes, and the W-4 equivalent requirements for your state taxes. These documents are what your employer uses to make sure they’re withholding enough taxes for you. Making retirement contributions helps reduce your income and save for retirement, and understanding any out-of-state tax situation can help you make any arrangements outside of your paycheck to cover unpaid state taxes.
