In addition to your base salary or wages, there are other forms of compensation you receive for your work as an employee that are also subject to federal income tax. Normally, all your taxable compensation will be reported on the Form W-2 you receive from your employer. But even if you do not receive a W-2, you are responsible for reporting your taxable employee compensation. You may be able to reduce your tax for the current year by deferring part of your salary or wages to a qualified retirement plan.
All the compensation you receive for the work you perform as an employee, whether in the form of wages, salary, tips or other remuneration, must be reported on your annual tax return. Your employer should send you a Form W-2, Wage and Tax Statement, each year, and the amount reported in box 1 of Form W-2 is your taxable employee compensation for the year. If you work for more than one employer during the year, you will need to be sure you get a W-2 from each employer and add up the taxable compensation reported on all your W-2s. If you do not receive a Form W-2, you should contact your employer, but you still have to report the taxable compensation received from that employer on your tax return.
Types of Employee Compensation
In addition to wages, salaries, and tips, employee compensation includes other amounts such as commissions, bonuses, awards, allowances, and reimbursements. These amounts should be included in the amount reported in box 1 of your Form W-2, but you should be aware of the taxable employee compensation you have received during the year so that you can properly report it when you file your federal income tax return. The following are descriptions of some of the components of employee compensation you should take into account.
Allowances and Reimbursements
If your employer pays you an advance, allowance, or reimbursement for travel, transportation, entertainment, or other expenses, how you report the amount received and the actual expenses incurred will depend on whether the payment was made to you under an accountable plan or non-accountable plan.
Basically, under an accountable plan you must report your actual expenses incurred to your employer, who will in turn reimburse you for the actual amount spent. In this case, the reimbursement is not included in your compensation and you do not need to report the expenses.
Under a non-accountable plan, you are not required to inform your employer of your actual expenses incurred. Your employer pays you an allowance and this amount is included in your compensation, in box 1 of your W-2. You will then need to complete Form 2106 to deduct your business-related travel, transportation and entertainment expenses.