New job? Congratulations! Here are a few things relating to Uncle Sam & taxes to keep in mind:
W-2s: When it comes time to prepare your taxes, don’t forget to include income from all employers you received wages from. If you have moved, the W-2 may or may be forwarded to you but it is your responsibility to keep addresses current with previous employers or request another copy of the W-2 from them.
Severance/Separation Pay: Any severance or separation pay is taxable in the year it is paid out. The same also goes for any accrued vacation pay paid out at departure. Any unemployment money received between jobs is also considered taxable income taxed at your ordinary tax rates.
W-4 Withholdings: If your income changed significantly from your previous job, it’s a good idea to re-evaluate how much is withheld for taxes. Got a big raise? Great, just double check if that puts you in a higher tax bracket or makes you ineligible for tax credits like the child tax credit or the student loan interest deduction to make sure enough is being withheld throughout the year.
Retirement Funds: You may be tempted to cash out and keep the funds from your old employer’s retirement account but for most people, this will bring an extra 10% penalty plus taxes at your normal tax rate (it adds up, believe me!). Instead of withdrawing, you can keep the funds with your old employer or transfer the funds directly to a traditional IRA (or Roth IRA if that makes more sense tax-wise-it will be taxable income in the year converted from 401(k)) at the investment establishment of your choosing. Also, make sure your contributions between your old job and new one for the year to a 401(k) do not go above $18,000 ($24,000 if over age 50). If the amount combined goes over, you might be subject to a penalty or have to withdraw excess funds.
Healthcare: If you have an HSA with both employers, make sure your contributions don’t go over a combined about of $3,400 single policy or $6,750 for a family policy or else excess funds are either subject to an extra tax or need to be withdrawn by due date of the return. Also, under current ACA law, if you do not have healthcare coverage for over 90 days, there may be an extra tax imposed. Check with your old and new employer for coverage dates to stay within this 90 short gap exemption or if over, look into Cobra or an individual health plan through your state’s exchange.
Job Change Expenses: There are a few job change related expenses that may be taken as deductions on your tax return. If you moved more than 50 miles away from your old job/residence, any out of pocket moving expenses may qualify for the moving expense deduction. Reimbursements by your new employer can be handled in many different ways so please consult a tax adviser about your specific situation. If you incurred signification job search expenses (unreimbursed travel, etc) you may qualify for the job search deduction which gets combined with other miscellaneous itemized deductions and has to get over 2% of your income to take.
Excess Social Security Taxes: If your combined taxable wages for the year exceed $127,200 in the year you changed jobs, there is a good chance you overpaid social security taxes. Any excess amount from your W-2s (combined if over $7,886.40 withheld on line 4 for an individual) will be put on Form 1040 line 71 and added to other tax payments made to go against any tax liability.
Enjoy your new job and if you have any tax questions related to the change, please consult a tax professional.