Understanding Your New-Hire Tax Documents

Starting a new job—or your own venture—is an exciting milestone, but it also comes with a lot of paperwork. Here’s what you need to know about the tax forms, and other tax considerations, as you embark on a new role.

Understand Key IRS Forms

Form W-4: Upon starting a job at a new company, you will be required to fill out Form W-4, which asks about your filing status, any qualifying children under age 17 or other dependents you may have, certain other deductions that you may have and other amounts you may want withheld. This tells your employer how much of your salary to withhold for tax purposes. You may want to review Form W-4 with your tax advisor to determine whether to have additional income tax withheld from your pay, particularly if you have multiple jobs, or if you are married and your spouse works as well.

Form W-2: This is the form that your employer is generally required to send to you in January to document what you earned in wages and other compensation from your employer, and how much tax they withheld on your behalf. Keep an eye out for it in the mail because you need it to prepare your tax return, and retain it for your records. The information on your Form W-2 can help you determine whether you had too much or too little tax withheld that year, and whether you will need to pay more with your tax return or request a refund. To avoid an unexpected payment when filing your tax return, talk to your tax advisor about your personal situation to help ensure you have sufficient income tax withheld from your pay and/or make estimated tax payments if necessary.

Forms 1099: If you are self-employed, a freelancer or an independent contractor, you may receive a Form 1099-NEC reporting the amount paid to you. Similar to Form W-2, Form 1099-NEC reports your income to the IRS to help the IRS verify whether you properly reported your income on your tax return. At the end of the year, you should also receive a Form 1099-INT for any bank account that has earned at least $10 in interest. You should receive Forms 1099 for your investment accounts detailing the amount of dividends (Form 1099-DIV) you have earned as well as any capital gains and/or losses (Form 1099-B). You will need these to prepare and file your tax return.

Explore Pre-Tax Benefits

As an employee, you may be able to take advantage of certain pre-tax benefits—meaning you may deduct the amounts for certain benefits from your paycheck before you pay any federal income taxes. This effectively lowers your federal (and possibly state and local) taxable income, which in turn may potentially lower the amount of tax you owe to the government. Such benefits may include contributions to qualified transportation benefits, flexible spending accounts (FSAs), Health Savings Accounts (HSAs), and traditional 401(k) plans. Make sure to ask your HR department about any available pre-tax benefits that are offered by your employer.

Keep Track of Deductible Expenses

Some expenses may be eligible for tax deductions, meaning they lower your taxable income. Subject to certain limitations, these may include student loan interest payments, charitable donations, health insurance premiums, mortgage interest payments and certain ordinary and necessary business expenses. It’s important to keep documentation of any expenses you plan to deduct on your tax return to substantiate your deductions. 

The Bottom Line

The start of a new professional chapter is a good time to brush up on IRS tax forms, pre-tax benefits and tax-deductible expenses that may apply to you. Keep in mind, tax implications can vary depending on your professional and personal circumstances, so make sure to speak to your tax advisor about your specific situation.

And when Tax Day rolls around, don’t forget to organize your documents and store them somewhere secure. The IRS recommends saving records of your tax returns and supporting documents for at least three years after filing. You may need them for certain applications or background checks, or to substantiate your income or deductions for the IRS or another taxing authority.