1. BLR’s Human Resources Training Presentations
Basic Tax Guidelines For Employees
Background for the Trainer:
Obtain recent copies of relevant state and federal tax forms, schedules, and instruction booklets to display as samples during the session.
Bring blank copies of W-4 forms and worksheets as well as W-2 forms to the meeting so that participants can see them as you talk about them.
Speaker’s Notes:
This training session will focus on basic tax guidelines for employees.
Although you are not in a position to advise employees about their taxes, they are likely to come to you with questions about tax matters relating to their employment, and you may be able to help them make more informed choices.
The purpose of this session is to provide you with the information you will need to answer simple questions from employees about such things as W-4 forms and tax withholding, W-2 forms, basic tax filing guidelines, and steps they can take to avoid problems at tax time.
/0312 © 2003 Business & Legal Reports, Inc.

2. Goals
Understand basic tax guidelines employees need to follow to comply with tax laws
Be able to answer questions and explain simple tax and withholding issues
Help employees avoid problems at tax time
Speaker’s Notes:
This session will help you understand the basic tax guidelines employees need to follow to comply with tax laws.
You will acquire the knowledge you need to answer employment-related tax questions and explain other simple tax and withholding issues to employees.
This information will assist you in helping your employees avoid problems at tax time.
Finally, we will wrap up the training session with a summary and quiz.
/0312 © 2003 Business & Legal Reports, Inc.

3. Payroll Deductions for Taxes
Federal and state income tax
Social Security
Medicare
Speaker’s Notes:
Payroll deductions are amounts withheld from employees’ gross pay to make tax payments. Once withheld, the company sends the money to the federal and/or state government.
The major deductions are for federal and state income tax. Federal income taxes are usually the largest portion of payroll deductions.
A small percentage of employees’ earnings are also deducted for Social Security. The company contributes a matching amount.
Another small percentage of earnings is deducted for Medicare. Again, the company matches the employee’s deduction. The combined Social Security and Medicare deductions are known as FICA.
/0312 © 2003 Business & Legal Reports, Inc.

4. W-4 Form What is it? Who must fill one out? Why is accuracy important?
Background for the Trainer:
Some states have a withholding form similar to the federal W-4. If your state is one of them, mention that form here as well and discuss any worksheets associated with it in the next section.
Speaker’s Notes:
Everyone’s heard of the W-4 form. But let’s define it clearly.
Form W-4 is a federal form that is used by the company to determine how much income tax to withhold each pay period from employees’ paychecks.
All employees must fill one out when they are hired, and the company must keep these forms on file for as long as an employee works here.
It is important for employees to fill out their W-4s properly. If too much tax is withheld, they lose more money than they need to from their weekly paycheck—money they could be saving or spending for current needs. If too little tax is withheld, an employee may be penalized for underpayment of taxes.
/0312 © 2003 Business & Legal Reports, Inc.

5. W-4 Worksheets Personal Allowance Worksheet
Deductions and Adjustments Worksheet
Two-Earner/ Two-Job Worksheet
Speaker’s Notes:
The W-4 form has three worksheets to help employees determine what their withholding should be for the upcoming year.
All employees should use the Personal Allowance Worksheet to determine the number of allowances to claim on the W-4 form.
Some employees may wish to further increase or decrease their withholding based on their personal circumstances. These employees will need to use the Deductions and Adjustments Worksheet.
The Two-Earner/Two-Job Worksheet should be used by employees who have more than one job or who are married to a working spouse.
/0312 © 2003 Business & Legal Reports, Inc.

6. Allowances Personal exemptions Filing status as “head of household”
Child or dependent care expenses credit
Child tax credit
Speaker’s Notes:
Allowances help determine an employee’s rate of withholding based on his or her individual circumstances. Each allowance reduces the amount of tax withheld. The more allowances employees claim on their W-4, the less income tax they pay. Allowances may be claimed on the basis of several factors.
Each employee is allowed a personal exemption from gross income. The exact amount of this exemption varies from tax year to tax year. If an employee is married and filing a joint return, two allowances are deducted from gross income. And employees are allowed another allowance for each dependent claimed on the W-4.
To claim filing status as “head of household” employees must be unmarried and pay more than 50 percent of the costs of keeping a home for themselves and their dependents. Those who qualify for this status get to claim an extra allowance on the W-4 form.
Employees who have child or dependent care expenses, such as daycare for a child or young dependent under age 13, may claim an additional allowance on their W-4.
Some employees with children may also be able to reduce withholding by claiming allowances for the child tax credit. The number of allowances is calculated on the basis of the number of eligible children as well as income considerations.
/0312 © 2003 Business & Legal Reports, Inc.

7. Deductions and Adjustments
Itemized deductions
Nonwage income
Other adjustments to income
Speaker’s Notes:
Some employees may need to further adjust their withholding.
For example, those with itemized deductions will need to take these deductions into account when filling out their W-4s. Itemized deductions, such as home mortgage interest, state and local taxes, charitable contributions, medical expenses that exceed 7.5 percent of adjusted gross income, and other miscellaneous deductions, can significantly decrease the amount of taxes owed.
Employees who have significant nonwage income, such as interest or dividend income from bank savings accounts, bonds, stocks and mutual funds, may need to increase their withholding to account for this extra income.
Other adjustments to income that can affect the amount of withholding include items such as IRA contributions, alimony, and student loan interest.
/0312 © 2003 Business & Legal Reports, Inc.

8. Two-Earner Families and Employees with Two Jobs
Married with both spouses working
Employee with two jobs
Speaker’s Notes:
Many employees will come from two-earner families and some may have second jobs. These factors will also affect withholding.
Employees who are married, have a working spouse, and, together with their spouse, earn more than $35,000 a year should use the Two-Earner/Two-Job Worksheet to ensure that enough tax is withheld from their gross pay during the year. This is necessary because withholding by each employer is based on the tax bracket for an individual earning only the amount of pay from that one job. The combined income of both spouses puts them in a much higher tax bracket and more tax will most likely need to be withheld.
The same is true for employees who have two jobs. They should also use the worksheet to make sure that the information on their W-4 is complete and accurate. Otherwise, they could face penalties.
/0312 © 2003 Business & Legal Reports, Inc.

9. Avoiding Penalties 90 percent of tax shown on the tax return
Amount of the previous year’s tax
Speaker’s Notes:
IRS and state tax authorities may penalize taxpayers who have too little tax withheld from their pay during the year.
To avoid penalties an employee’s tax withholding plus any estimated tax payments made during the year should add up to more than 90 percent of the tax shown on the employee’s tax return.
Of course, employees may not know at the beginning of the tax year how much tax they are actually going to have to pay in April—especially those who have significant nonwage income. So another way they can figure out how to avoid penalties is to make sure that their total withholding for the year comes to at least as much as they paid in tax the previous year.
/0312 © 2003 Business & Legal Reports, Inc.

10. Reviewing the W-4 Annually Changes in personal finances
Changes in personal circumstances
Speaker’s Notes:
Employees should review their W-4 form regularly to make sure that the information is still valid.
It is a good idea for all employees to review their W-4 withholding rate every year and consider if there are any upcoming changes that could affect withholding.
For example, changes in personal finances, such as increased nonwage income or refinancing a mortgage at a lower rate, may require changes on the W-4.
Changes in personal circumstances, such as marriage, divorce, or more dependents, will also affect the information on the W-4 form.
/0312 © 2003 Business & Legal Reports, Inc.

11. W-2 Form Federal and state income tax Social Security tax Medicare tax
Background for the Trainer:
Check the current tax rate and maximum wage base for Social Security tax. Also check the current Medicare tax rate.
Speaker’s Notes:
Another important tax form is the W-2 form. Most employees will already be familiar with the W-2, since it is used for filing income taxes each year. Many employees, however, may not be familiar with how the figures on the form are calculated.
The amount of federal and state income tax shown on the W-2 is based on an employee’s W-4. The information on the W-4, as we’ve seen, is just an estimate of what employees believe they owe the government in tax for the calendar year. The actual tax owed might be more or less and is determined when the tax return is filed.
Social Security tax is a set percentage of an employee’s pay up to a maximum wage base. What this means is that employees who earn over the maximum wage base don’t get taxed on the extra amount. The Social Security tax rate and maximum wage base change over the years. Currently, the rate is a little over 6 percent of income and the maximum wage base is close to $90,000.
Medicare tax is also a set percentage of employees’ pay. There is no wage limit on Medicare taxes. The current rate is about 1.5 percent of pay, but this rate can also change from year to year.
/0312 © 2003 Business & Legal Reports, Inc.

12. Choosing the Right Tax Forms
1040EZ
1040A
1040
Form 8812
Background for the Trainer:
Discuss relevant state and local tax forms at this time.
Speaker’s Notes:
When it comes time to do their federal taxes, employees must make sure they use the right tax forms.
Employees with no dependents and an income of less than $50,000 a year who are single or married and filing jointly, who earn less than $400 in interest or dividends, and who do not itemize deductions can use Form 1040EZ.
Employees with an income of less than $50,000 a year who do not itemize deductions but do not qualify for using the 1040EZ form may be able to use Form 1040A.
Many of your employees will probably need to use Form Employees with an income greater than $50,000 who itemize deductions and have interest and dividend income must use Form 1040.
Employees claiming a child tax credit for dependent care expenses, such as daycare for children under age 13, must use Form 8812 in addition to the individual tax return form.
/0312 © 2003 Business & Legal Reports, Inc.

13. Choosing the Right Tax Schedules
Schedule A
Schedule B
Schedule C
Schedule D
Schedule EIC
Background for the Trainer:
Discuss any relevant state and local tax schedules at this time.
Speaker’s Notes:
Employees must also make sure they use the right federal tax schedules when filing their returns.
Schedule A must be used by employees who itemize deductions.
Schedule B must be used by employees who earn more than $400 in interest from savings accounts, certificates of deposit, money markets, and other bank accounts. Employees who earn more than $400 in dividends from stock, bonds, and mutual funds must also complete Schedule B.
Some employees may have a business of their own on the side. Nonemployee income of this kind must be reported on Schedule C.
Any capital gains or losses, such as from the sale of stock, must be reported on Schedule D.
Some employees may need to use Schedule EIC to claim an earned income tax credit if they have a child or dependent living with them and they meet the maximum income requirements.
/0312 © 2003 Business & Legal Reports, Inc.

14. Gathering the Necessary Information and Documentation
W-2 forms
1099 forms
Annual mortgage interest
Real estate tax statements and receipts
Last year’s state taxes
Other receipts
Speaker’s Notes:
Once employees have the right forms, they need to gather all the information and documentation they will need to complete their returns accurately. Ideally, employees will have established a system for organizing and filing this information as it comes in during the year so that they will have it all at their fingertips come filing time.
First of all, they will need their W-2 forms, copies of which they will need to attach to their federal and state tax returns.
Banks, mutual funds, and other financial institutions issue a Form 1099 each year to employees who have interest income from savings or dividends from securities. If the total amount shown on the 1099s is more than $400, employees must report the income on Schedule B.
Banks and mortgage companies provide their clients with a statement of mortgage interest for the year. Banks also provide statements for interest on home equity loans, some or all of which may be tax deductible. Employees with mortgages and home equity loans need this information if they itemize deductions.
Employees who own their homes will also need to know how much real estate tax they paid during the year, since real estate taxes are deductible expenses. This information may be on the mortgage statement if the bank pays real estate taxes for the employee. If the employee pays his or her own taxes directly to the municipality, the employee will have a tax receipt from the town or city.
State taxes are also deductible on the federal tax form. Employees should also have their state tax return for the previous year handy.
Finally, employees will need all receipts for other deductions claimed on the tax return—for example, receipts for medical expenses, charitable contributions, excise taxes on their vehicles, and so forth.
/0312 © 2003 Business & Legal Reports, Inc.

15. Preparing a Tax Return Read and follow instructions carefully
Write legibly
Round off
Sign and date your return
Speaker’s Notes:
You can share the following basic guidelines for preparing a tax return with your employees.
Read and follow all instructions carefully. If there’s something you don’t understand, call IRS or the state tax office. Don’t guess.
Write legibly if you fill out your tax form by hand. If you file electronically, type carefully and accurately.
Round figures off to the nearest dollar.
Be sure to sign and date your return and enter your Social Security number.
/0312 © 2003 Business & Legal Reports, Inc.

16. Preparing a Tax Return (cont.)
Complete all required forms and schedules
Make sure your name and address are correct on the peel-off label
Include a check and payment voucher if you owe taxes
Keep a copy of your return
Speaker’s Notes:
Be sure to complete all required forms and schedules.
Make sure your name and address are correct if you use the peel-off label.
Include a check and payment voucher (Form 1040-V) if you owe taxes.
Keep a copy of your return for your files.
/0312 © 2003 Business & Legal Reports, Inc.

17. Avoiding Common Errors
Qualifying dependents
Calculations
Method for figuring taxes
Social Security number
Speaker’s Notes:
IRS advises taxpayers to avoid these common errors.
Make sure you correctly enter the name and Social Security number of each dependent claimed on the form.
Double-check your math.
Be sure to use the correct method for figuring taxes. Check the instructions. Many taxpayers can use the tax tables, but others may need to use alternate methods.
Make sure to enter your Social Security number in the proper place, and if you are married and file a joint return, make sure your spouse’s Social Security number is also entered correctly.
/0312 © 2003 Business & Legal Reports, Inc.

18. Avoiding Common Errors (cont.)
Current address
Sign and date form
W-2 forms
Tax payments
Speaker’s Notes:
Make sure your current address is on your form. If you use the peel-off label and the address is incorrect, draw a line through the incorrect information and write in the correct address. If you move during the year, let federal and state tax authorities know your new address.
Be sure to sign and date the form and enter your occupation. If you are married and filing jointly, your spouse must also sign and date the form and enter his or her occupation.
Don’t forget to attach W-2 forms.
If you owe taxes, make sure you include your name, address, daytime phone number, and Social Security number on your check or money order. Do not send cash.
/0312 © 2003 Business & Legal Reports, Inc.

19. Electronic Tax Returns
Tax preparation software
Free filing options
Authorized e-filer providers
State/federal e-file
Direct deposit
Background for the Trainer:
To find out if your state participates in the joint federal/state e-filing program, check the IRS website at
Speaker’s Notes:
Many of your employees may be able to take advantage of new electronic filing options for state and federal tax returns. E-filing has the advantage of being quick, easy, secure, and paperless. It can also cut the amount of time it takes to get a refund in half.
Various tax preparation software packages are available on the market at a reasonable cost.
Some taxpayers may be able to take advantage of free tax preparation software available through the IRS. To find out if they qualify for these free e-filing services, employees can log on to or
Employees can also e-file through authorized e-filer providers, including most professional tax preparation services.
Many states are now participating in a joint federal/state e-filing program, making it possible to file federal and state tax returns together using e-file. The tax preparation software automatically transfers relevant data from the federal income tax return to the state income tax return as the information is entered.
In addition to filing electronically, employees can now get faster refunds by using direct deposit. Instead of receiving a refund check in the mail, the refund is electronically deposited in the employee’s bank account. Employees don’t have to e-file to take advantage of direct deposit of tax refunds.
/0312 © 2003 Business & Legal Reports, Inc.

20. Recordkeeping Tax forms and schedules W-2 forms W-4 worksheets
Documentation
Speaker’s Notes:
Employees should keep all tax records for at least three years. This includes …
Copies of all completed tax forms and schedules …
Taxpayer copies of W-2 forms …
Worksheets used to complete the W-4 form …
And all documentation, such as receipts, 1099s, etc.
/0312 © 2003 Business & Legal Reports, Inc.

21. Free Tax Assistance Telephone Online Mail and e-mail Speaker’s Notes:
Free tax assistance is available all year around from state and federal tax offices.
IRS and state tax authorities provide toll-free numbers to help taxpayers with any questions they may have about their taxes. Employees can get the right phone number by checking the blue pages in their phone book.
Much tax information is also available online at the IRS website and through the state’s website.
Employees can also contact tax authorities by mail or to ask questions about tax rules, forms, and so forth.
/0312 © 2003 Business & Legal Reports, Inc.

22. Filing Extensions Four-month extension Form 4868 Tax payments
Background for the Trainer:
Explain your state’s rules and form for filing extensions.
Speaker’s Notes:
Employees who are unable to file their taxes by the April deadline for any reason may request a filing extension.
Any taxpayer can get an automatic four-month filing extension on their taxes—for any reason—simply by asking for it before the April filing deadline.
Employees who need a filing extension can fill out and mail in a Form 4868, or they can file for an extension by phone, online, or through a professional tax preparation service.
The extension, however, does not extend the time an employee has to pay tax owed. Taxpayers may owe interest plus a late payment penalty on any amount not paid by the April deadline.
/0312 © 2003 Business & Legal Reports, Inc.

23. Tips for Avoiding Problems at Tax Time
Make sure your W-4 is current and accurate
Organize your tax records
Make sure you use the right forms and schedules
Don’t procrastinate
Take advantage of free tax assistance
Speaker’s Notes:
Now let’s review briefly by taking a look at some tips you can pass along to your employees for avoiding problems at tax time.
To avoid having too much tax withheld, or too little and facing penalties, make sure the information on your W-4 form is up to date and accurate.
Time spent on tax preparation can be significantly reduced and you stand less chance of making errors if you develop and maintain a system for organizing all the records and receipts you need to complete your return.
Make sure you use the right tax forms and schedules. If you’re not sure which forms to use, call or go online and check with IRS or the state tax office.
Don’t procrastinate. Resist the temptation to put off doing your taxes until the last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.
Take advantage of free tax assistance. Go online or call the toll-free federal and state tax assistance numbers listed in the tax instruction booklets or the blue pages of your phone book.
/0312 © 2003 Business & Legal Reports, Inc.

24. Tips for Avoiding Problems at Tax Time (cont.)
Double-check your math and data entries
File your return electronically
Have your refund deposited directly to your bank account
Request an extension if you need more time to file
Don’t panic if you can’t pay
Speaker’s Notes:
Before you mail your return, double-check your math and make sure you’ve entered all the required information.
About 50 million Americans are now filing their returns electronically. Aside from ease of filing, IRS says e-file is the fastest and most accurate way to file a tax return. If you’re due a refund, the wait time for e-filers is half that of paper filers.
Have your refund deposited directly to your bank account. This will speed up your refund and reduce the chance of theft. Just make sure the routing and account numbers you enter on your tax return are correct.
If the clock runs out, request a filing extension to give you more time to prepare your return.
Don’t panic if you can’t immediately pay the taxes you owe. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late payment penalty rate. You can also charge your balance on a credit card for a small fee. Check your tax instruction booklet for details.
/0312 © 2003 Business & Legal Reports, Inc.

25. Goals
Understand basic tax guidelines employees need to follow to comply with tax laws
Be able to answer questions and explain simple tax and withholding issues
Help employees avoid problems at tax time
Speaker’s Notes:
Are there any questions concerning basic tax guidelines for employees?
Let’s wrap up this training session with a summary and a quiz.
/0312 © 2003 Business & Legal Reports, Inc.

26. Summary
You should be aware of the basic tax guidelines employees need to follow to comply with tax laws
You need to be able to answer employment-related tax information concerning withholding and other important tax issues
You can also provide employees with additional useful information about filing taxes and avoiding common tax-filing mistakes
/0312 © 2003 Business & Legal Reports, Inc.

27. Quiz 1. Identify three payroll deductions for taxes.
2. What is the purpose of the W-4 form?
3. Only employees who itemize deductions have to fill out a W-4. True or False
4. Why is it so important for employees to fill out their W-4 properly?
5. Identify three potential allowances employees can claim on their W-4 to reduce withholding.
Background for the Trainer:
Remind participants that the quiz is to encourage further discussion and to ensure that everyone understands what was discussed.
/0312 © 2003 Business & Legal Reports, Inc.

28. Quiz (cont.)
6. Your employees should review their W-4 form annually. True or False
7. Identify three deductions that employees may need to take into account when completing their W-4 forms.
8. Identify three adjustments to income that can affect an employee’s withholding.
/0312 © 2003 Business & Legal Reports, Inc.

29. Quiz (cont.)
9. Common errors people make when filing their taxes include arithmetic mistakes, failing to sign and date the forms, using the wrong method to calculate taxes, and failing to enter their own or their spouse’s Social Security number True or False
10. Employees should keep copies of tax returns and all related documentation, including W-2 forms, for at least _______ years.
/0312 © 2003 Business & Legal Reports, Inc.

30. Quiz Answers
1. Payroll deductions for taxes include state and federal income tax, Social Security tax, and the Medicare tax.
2. Form W-4 is a federal form that is used by the company to determine how much income tax to withhold each pay period from employees’ paychecks.
3. False. All employees must fill out a W-4 when they are hired.
/0312 © 2003 Business & Legal Reports, Inc.

31. Quiz Answers (cont.)
4. It is important for employees to fill out their W-4 properly because if too much tax is withheld, they lose more money than they need to from their weekly paycheck—money they could be saving or spending for current needs. If too little tax is withheld, an employee may be penalized for underpayment of taxes.
5. Allowances include personal exemptions, filing status as “head of household,” child or dependent care expenses credit, and child tax credit.
/0312 © 2003 Business & Legal Reports, Inc.

32. Quiz Answers (cont.)
6. True. Any changes in personal finances or circumstances should be updated on the W-4.
7. Itemized deductions such as home mortgage interest, state and local taxes, charitable contributions, and medical expenses can significantly decrease the amount of taxes owed.
8. Adjustments such as interest or dividend income, IRA contributions, alimony, and student loan interest can affect the amount of withholding.
/0312 © 2003 Business & Legal Reports, Inc.

33. Quiz Answers (cont.)
9. True. People also commonly forget to enter the name and Social Security number of each dependent claimed on the form, attach required W-2 forms, and check to make sure their current address is on the peel-off label.
10. Employees should keep copies of tax returns and all related documentation, including W-2 forms, for at least three years.
/0312 © 2003 Business & Legal Reports, Inc.