What Year to Pay Taxes on the Last Paycheck of the Year
Posted by : Premraj | Posted on : Monday, December 23, 2019
DELICIOUS
SU
REDDITDecember is a good time to take stock of your life going into 2020. It’s also a good time to take stock of your finances, including how much you’ll pay in taxes next year.
52 percent of Americans find the tax-filing process stressful. There is often a lot of moving parts that are hard to figure out.
You might also feel confused by the last paycheck of the year. Does it count for your January income or December income?
Read on to find out all you need to know about when to pay taxes on your income for 2019.
The Paycheck Date Rule
Here’s a common scenario: Your last pay period of 2019 ends on December 30. That’s a Monday. But you don’t get paid until Friday, January 3.
When that happens, you’re probably asking, “What happens if I get paid in January for work in December?” When in doubt, look at the date on the check.
If the date says Jan. 3, 2020, then that counts towards your 2020 income. Yes, you earned it in 2019. But the money didn’t show up in your bank account until the next year.
What matters here is a concept known as constructive receipt. If you have the check but can’t cash it, then you don’t have it, at least not in the eyes of the IRS.
This was more of a problem when physicals checks ruled. Nowadays, you’re more likely to get a direct deposit every two weeks. You should also receive a pay stub through a site like Paystubs.net.
What if you get a direct deposit that’s dated Jan. 1 even though it appears Dec. 31? That’s unlikely because of bank holidays. Yet if that did happen, you should count that as income for 2019.
Filing Taxes with the Last Paycheck
If all this sounds confusing, take a deep breath. Remember things should also become clearer after you get your W-2.
Your employer has to give you a W-2 by the end of January 2020. The W-2 will contain your gross taxable income for the entirety of 2019.
Of course, your company’s payroll department might make a mistake. It’s good for you to know about how much income to expect on your W-2. That way, you’ll be more likely to catch any errors.
Taxes aren’t due until April. If your income is more or less than you thought, you’ve got plenty of time to make adjustments or correct problems.
What if you have income that’s not on a W-2? If you’re doing freelance or contract work, the paycheck date still applies.
There’s often a significant lag time between when freelancers complete a job and when they get paid. But the rule still applies. If you did the work in October, you may feel like that should be part of your 2019 income.
But that’s not the way it works. It’s all about when you have control of the funds someone owes you.
Understanding the Last Paycheck of the Year
The last paycheck of the year sounds complicated, but it’s less so as long as you remember to look at the date. That simplifies things for both you and your tax accountant.
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