Is Dec. '17 work paid Jan. '18 taxable for 2017?

[kyphysics]

If I worked Dec. 2017 and didn't get paid until January 2018, is that taxable income for a 2017 tax filing?

Anyone know? Thanks.

 

[Borg]

If I worked Dec. 2017 and didn't get paid until January 2018, is that taxable income for a 2017 tax filing?

Anyone know? Thanks.

It's generally applicable to the 2018 tax year. If this is a paycheck from a company, you should have a pay statement that says which year it is applied to.

 

[.Scott]

The answer is in the instructions the employer uses in preparing the W-2. Those instructions are here:
https://www.irs.gov/pub/irs-pdf/iw2w3.pdf

That form does not have a single statement that answers your question concisely. But in every case, it refers to the payment of wages - and in some cases refers to those payments during the calendar year.

Here is a good example:

If you made the payment after the employee's death but in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report the payment on the employee's Form W-2 only as social security and Medicare wages to ensure proper social security and Medicare credit is received. On the employee's Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6. Do not show the payment in box 1.

If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes.

So the answer is - it would be taxable in the year you were paid - not necessarily the year you worked the hours.

 

[kyphysics]

It's generally applicable to the 2018 tax year. If this is a paycheck from a company, you should have a pay statement that says which year it is applied to.

That's what I figured.

I wasn't a W2 worker for my part-time job, though. I was an independent contractor doing Big Box retail and also pharmaceutical audits, so I got paid by project.

I mostly worked during the summer, but also performed several all-day audits over winter break as well. Didn't get paid until early 2018 though, so that's why I asked.

 

[kyphysics]

The answer is in the instructions the employer uses in preparing the W-2. Those instructions are here:
https://www.irs.gov/pub/irs-pdf/iw2w3.pdf

That form does not have a single statement that answers your question concisely. But in every case, it refers to the payment of wages - and in some cases refers to those payments during the calendar year.

Here is a good example:So the answer is - it would be taxable in the year you were paid - not necessarily the year you worked the hours.

Yeah, I clarified my situation in the post above. I wasn't a W2 worker, but a 1099 one (although, for some companies, I didn't get a 1099, due to being under $600 in income from their projects). Thx anyways, though!

 

[jedishrfu]

Why not contact your employer and ask them?

If you didn’t get s W2 form then that would be an indicator too of no tax in 2017 unless the employer forgot or didn’t know where to send it.

Please be aware we are not tax specialists and we can’t speak for the IRS and so our advice is something to use at your own risk.

You could ask someone at HR Block but again the same advice guidelines apply.

Bottom line: Go ask the IRS or your employer for a more definitive answer.

 

[.Scott]

Yeah, I clarified my situation in the post above. I wasn't a W2 worker, but a 1099 one (although, for some companies, I didn't get a 1099, due to being under $600 in income from their projects). Thx anyways, though!

In that case, you have a bit of a choice. You are allowed to consider income when it becomes due or when it is actually received - but you need to keep records consistently.
That said, since your customers are issuing 1099's for 2018, you are better off treating it as 2018 income.

 

[Dr.D]

Is it safe to be giving tax advice when none of us are tax experts? I would not think so, so why is this thread allowed to continue?

 

[russ_watters]

Is it safe to be giving tax advice when none of us are tax experts? I would not think so, so why is this thread allowed to continue?

Tax advice is not like medical (or even legal) advice. There is substantially less risk.

 

[Dr.D]

State and federal penalties are not exactly what I think of as risk free. In a very real sense, tax advice is legal advice.

 

[russ_watters]

State and federal penalties are not exactly what I think of as risk free. In a very real sense, tax advice is legal advice.

I didn't say "risk free", I said "less risk".

To me, the test for locking a thread is "should this be answered by a professional?" This applies to medical, legal and even engineering (which is often legal) advice. For tax advice that threshold is pretty high because most people do their own taxes. This question falls below that threshold.

 

[StoneTemplePython]

My thinking is (a) not a great question to ask on Tax Deadline date, (b) after making the best, conservative estimate you can, you're going to need to file for an extension

 

[Tom.G]

I had that problem many years ago when a check was mailed on Dec 31 and I received it on Jan 3. The employer of course wrote it off for the earlier year and I, of course, did not include it on that years return. Several months later the IRS sent me a letter asking about the discrepancy. I responded with the above info and informed them that since I did not have "constructive use" of the funds in the earlier year I did not include it on my return, and that it would appear on the following year return. That was the last I heard about it.

That "constructive use" term appears in several of the more technical IRS publications and seems to be treated as a legal term.

 

[kyphysics]

I had that problem many years ago when a check was mailed on Dec 31 and I received it on Jan 3. The employer of course wrote it off for the earlier year and I, of course, did not include it on that years return. Several months later the IRS sent me a letter asking about the discrepancy. I responded with the above info and informed them that since I did not have "constructive use" of the funds in the earlier year I did not include it on my return, and that it would appear on the following year return. That was the last I heard about it.

That "constructive use" term appears in several of the more technical IRS publications and seems to be treated as a legal term.

Interesting. I'll look that up, since it could apply to me. Personally, though, I don't care either way. It's not like a few hundred bucks extra in taxable 2017 income is going to kill me. I don't mind doing it 2017 or 2018, but it was more of a personal curiosity and also not wanting that big brother IRS dude to come knocking on my door and scaring me (although, I doubt they'd care over a small guy like me how made less than $10K last year and probably have better things to do like going after 6-figure+ dudes).

This was still a good question, though, for a first-time tax preparer like mhyself!

 

[kyphysics]

Tax advice is not like medical (or even legal) advice. There is substantially less risk.

I get the "technical" side of things, but also figured this would be a "common" issue that probably everyone has held to deal with. So that's why I asked.

I was a W2 worker my freshman year in college (worked retail) and that was the last of that. Didn't work a few years after until now. Taxes were easy. Just use a W2 and pull info. off of that. As a 1099 person for this past year only, I was like hmmmm...what to do? This time I am the one who has to supply the info.

The reason I didn't consult with a professional is that HR Block told me they'd charge $300 minimum to do my taxes and I said hell no! The woman said for independent contractors the form was more complex, so it would be $300 to $400+. Nah. I've got it all done practically, except for that one little hitch about mid-Dec. 2017 work that didn't get paid until 2018.

That's really the only question and I figured people probably would have dealt with that before.

 

[kyphysics]

Since this thread topic has already been posted and it's tax season, I thought I'd ask:

At what point do you guys hire a tax professional to do your taxes? I've never had to in the past and don't plan to this year either. But what level of complexity makes you guys go the "pro" route? E.g., when securities investments are involved? ...when your income is 6-figures or more?, etc.

 

[jtbell]

I've always done our taxes myself, first with pencil and paper, then (for about the last ten years) with TurboTax. At first only W-2 earnings and bank/CD interest, then stock dividends, then mutual-fund and stock (ETF) capital gains/losses, then IRA contributions. No Social Security or distributions from our 403(b) retirement plans yet, but those will start next year. I don't anticipate TurboTax will have any problems with those.

I switched to TurboTax mainly because the mutual-fund company that I started to deal with offers a discount on it to their customers above a certain level. Otherwise I might still be doing taxes by hand.

 

[gmax137]

At what point do you guys hire a tax professional to do your taxes?

My wife had a part-time job in an accountant's office, and one of the benefits was free tax prep. So I got used to not doing our taxes, and even after she left that job, I still pay an accountant to do it. It's a cost, for sure, and every year (about this time) I swear I will do it myself "next year." But I don't.

 

[russ_watters]

Since this thread topic has already been posted and it's tax season, I thought I'd ask:

At what point do you guys hire a tax professional to do your taxes? I've never had to in the past and don't plan to this year either. But what level of complexity makes you guys go the "pro" route? E.g., when securities investments are involved? ...when your income is 6-figures or more?, etc.

Since there are no laws dictating this, the general answer is "when you no longer think you can handle it yourself."

I don't foresee ever reaching that point, except maybe if I start my own business or win the lottery, and maybe not even then. TurboTax makes it easy and cheap to do your own.

 

[Astronuc]

I had that problem many years ago when a check was mailed on Dec 31 and I received it on Jan 3. The employer of course wrote it off for the earlier year and I, of course, did not include it on that years return. Several months later the IRS sent me a letter asking about the discrepancy. I responded with the above info and informed them that since I did not have "constructive use" of the funds in the earlier year I did not include it on my return, and that it would appear on the following year return. That was the last I heard about it.

That "constructive use" term appears in several of the more technical IRS publications and seems to be treated as a legal term.

Since the funds were made available on Dec 31, the term "constructive receipt" applies.

http://www.aipb.org/pdf/PAYROLL.pdf

https://www.irs.gov/publications/p538#en_US_201612_publink1000270642

Constructive receipt.

Income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it. If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations.

With respect to legal matters/questions involving the federal government, the answer is often found in the US Code or Code of Federal Regulations (in the US), or in a publication of the particular administrative department responsible for the regulation. Finding the specific answer can be a chore, which is why folks engage a lawyer, or in this case, a license accountant or book-keeper.

 

[Vanadium 50]

Since there are no laws dictating this, the general answer is "when you no longer think you can handle it yourself."

The problem is that when it gets complicated, it also gets expensive, so it's kind of a moving target,

publication of the particular administrative department responsible for the regulation

In this case, it's called the Federal Tax Coordinator. Forty-five volumes of rompin' stompin' excitement!

 

[kyphysics]

Since the funds were made available on Dec 31, the term "constructive receipt" applies.

http://www.aipb.org/pdf/PAYROLL.pdf

https://www.irs.gov/publications/p538#en_US_201612_publink1000270642

With respect to legal matters/questions involving the federal government, the answer is often found in the US Code or Code of Federal Regulations (in the US), or in a publication of the particular administrative department responsible for the regulation. Finding the specific answer can be a chore, which is why folks engage a lawyer, or in this case, a license accountant or book-keeper.

Thanks for the citation, Astronuc.

re: consulting a tax professional - The question is how do they even know?!

I can't remember which political candidate I remember hearing say that the tax code could fill an entire dump truck worth of pages of rules. I'm just glad some humans are wired to do this so that I don't have to worry about it. I'm using Turbo Tax!

 

[Vanadium 50]

The question is how do they even know?!

See above - the Federal Tax Coordinator.

 

[kyphysics]

See above - the Federal Tax Coordinator.

Yeah, I was asking semi-rhetorically there. As in...there's so much to know/learn, how on Earth can anyone do it?

Of course, I'm assuming they have some kind of reference look-up system to find the relevant code. Sort of how like a law library contains tons of stuff lawyers need to know, but can look up as needed...not like they literally have memorized and mastered all of that stuff. I'm guessing taxes are the same way. Probably these professionals don't always know stuff and need to look it up too, but have a system in place that makes it easier to do, given the mountains of law/code they have to sift through.

Sounds like a boring job to me, but glad someone does it!

 

[kyphysics]

It's generally applicable to the 2018 tax year. If this is a paycheck from a company, you should have a pay statement that says which year it is applied to.

Also...FWIW, Borg, et. al, I did call H&R Block locally and asked them my OP question.

They said when you actually are paid is when you need to report income. So 2017 work that was paid in 2018 is counted for your 2018 filing (not 2017). That's basically what I thought, but it was nice to confirm with a tax pro.

They're actually pretty nice if you only have one ore two questions (easy ones I'm assuming). I just figured I'd try calling. They'll answer it for free for you over the phone (I guess you have to assume all the risk of accuracy). But I sensed I was asking too many questions, as the professional said she'd need to see all my stuff before answering more questions and had a changed tone that sounded like she didn't want to talk to me after I asked a few questions. lol. I thanked her and ended the call.

THEN, I called an HRB in a DIFFERENT city to get other questions answered. hahahahaha I limited the questions to one or two. THEN, I called a different HRB in yet another location and asked my final question!

I sort of got some free tax help from HRB without paying for a consultation by calling various locations and asking one or two simple questions.

Is that kind of sleazy of me?

 

[Tom.G]

Is that kind of sleazy of me?

I would go with "Practical."

 

[Borg]

Is that kind of sleazy of me?

Not at all. From their viewpoint, they're helping a potential customer. If you're happy with their customer service in that instance, you're more likely to become a paying customer.

As for myself, I wouldn't dare to do business with a company that won't answer simple questions without payment. That would be a big red flag in my book.