Taxes 101 part two

When it comes to taxes, it can feel like there’s a lot you don’t know. From complicated forms, to all the tax records you’ve received in the mail — it's a lot of information. We’re here to demystify your taxes and help you understand what those forms are and what is actually happening when you file.

What am I doing when I file my taxes?

Filing your taxes is not the same as paying your taxes (until you send a check at the end if you owe). Most likely you’ve been paying taxes all year through state and federal deductions from your paychecks. So what are you doing when you fill out the forms online? You’re confirming what you’ve paid with the IRS. And if you overpaid or underpaid, you’re determining how much you should get back in a refund, or how much you owe the government.

So, I’ve been paying state and federal taxes?

Yes, if you’ve been receiving a paycheck with taxes taken out. You can take a look at your most recent paycheck to see exactly what has been going on. You’ll see things like “federal tax withholding” and “state tax withholding,” along with other deductions. Check out this video on the anatomy of a paycheck to better understand your check.

Why would I be overpaying my taxes?

This is all about those forms you filled out when you first started at your job. The W-4 form (you filled one out if you’re hourly or salaried) tells your employer how much of your paycheck to withhold for taxes. The amount you withhold typically depends on how many allowances you have (allowances are things like a spouse or dependents). This is not a science, and you can choose whatever number of allowances you want — but it can alter the amount of taxes you get back in your refund or how much you have to pay to make up for it in taxes next year.

Got it. But a W-2 came in the mail, not a W-4.

True. Your employer keeps the W-4 and sends you a W-2 that goes over how much has been taken out of your paychecks throughout the year. You can use the information on the W-2 to fill out your tax forms. That’s when you’ll know if you owe or if you will be getting a refund.

Okay, I think I get it.

Fantastic! But there’s still more to learn. We have a tax cheat sheet, info on what taxes mean for your student loans and everything you need to know about your refund (or what to do if you owe) coming up later on this week.

Each person’s tax situation depends upon individual circumstances. Therefore, the information in this article is intended to serve as introductory tax information. Tax professionals should be consulted for personalized tax advice.