Staying on top of tax deadlines can feel overwhelming, especially for employees who receive tips and individuals with Individual Retirement Accounts (IRAs). This blog post aims to simplify things by providing a clear and concise overview of two important deadlines you might encounter:
May 10th: Reporting Tips to Your Employer
This deadline specifically applies to employees who earn tips as part of their regular wages. If, during April, you received more than $20 in tips, you are required to report this amount to your employer by May 10th. This reporting happens through IRS Form 4070.
Why report tips?
Tips are considered taxable income by the IRS. By reporting your tips to your employer, they can withhold the necessary FICA taxes (Social Security and Medicare) and income tax from your regular paycheck. This ensures these taxes are paid throughout the year, avoiding a large tax bill come filing season.
What happens if my regular wages are insufficient to cover the tax withholding?
If your regular paycheck doesn’t fully cover the FICA and income tax owed on your tips, your employer will report this shortfall on your W-2 form (box 8) for the year. This means you’ll be responsible for paying the remaining amount when you file your tax return.
May 31st: Final Due Date for IRA Trustees to Issue Form 5498
This deadline applies to individuals who hold Traditional, SEP, or SIMPLE IRAs. By May 31st, your IRA custodian (bank, brokerage firm, etc.) is required to send you Form 5498. This form details the fair market value (FMV) of your IRA as of December 31st of the prior year (in this case, December 31, 2023).
Why is the FMV important?
The FMV on your IRA account at the end of the year is used to calculate your required minimum distribution (RMD) for the following year. If you are age 73 or older in 2024, you are required to take a minimum amount out of your IRA each year, known as the RMD. The higher your IRA’s FMV, the greater your RMD will be.
Important Note: Weekends, Holidays, and Disaster Relief
- If a tax deadline falls on a Saturday, Sunday, or legal holiday, it is automatically extended to the next business day that is not a holiday.
- In instances where a geographical area is declared a disaster zone, tax deadlines might be further extended. You can find information on disaster relief extensions and affected areas on the following websites:
Beyond Deadlines: Additional Tax Tips for Employees and IRA Owners
Keeping good records is crucial for both employees who receive tips and IRA owners. Here are some additional tips:
For Employees:
- Maintain a log of your daily tips to ensure accurate reporting on Form 4070.
- Discuss any concerns about tip withholding with your employer or a tax professional.
For IRA Owners:
- Keep all IRA contribution and distribution statements in a safe place.
- Review your IRA contribution limits each year to ensure you’re staying within the guidelines.
- Consult a financial advisor to develop a personalized IRA withdrawal strategy.
By understanding these key deadlines and following some helpful tips, you can navigate your tax obligations with greater ease. Remember, this blog provides general information, and it’s always recommended to consult with a tax professional for personalized advice on your specific situation.
