Should withheld income tax be included as income?
Does it make sense to report withheld tax income as an additional   income? Is it required by the IRS? Is $T deductible? This is what is called imputed income. The ticket is an income for you, but the company doesn't want you to pay tax on it. But you have to. But they want to be nice to you and give you the ticket on their buck. But that's the law. So what have the accountants invented? Imputed income. The company raises your salary in the amount of taxes paid (+some, but that's negligible), in addition to the actual ticket. So it seems, to you, that you got the ticket for free. The IRS doesn't see the ticket, it just sees that you got a $T+$X bonus and paid $T taxes. The fact that the $X you got in form of a ticket doesn't matter to them. Re your edit - you cannot deduct anything, since you can only deduct unreimbursed expenses, whereas $X is not at all an expense for you (you didn't buy that ticket, the company did), and $T is taxes, which are not deductible (its not an expense). In other words, had C not have been nice, I would be in a better   position! No. Your net pay shouldn't be affected, technically, so from your perspective you just got a plane ticket for free. Had C not been nice, you would still not be able to deduct the whole cost of $X, because unreimbursed employee expenses have a 2% AGI threshold. This very topic was the subject of a question on workplace SE https://workplace.stackexchange.com/questions/8996/what-can-relocation-assistance-entail TL/DR;  From tax publication 521 - Moving expenses table regarding how to report IF your Form W-2 shows... your entire reimbursement reported   as   wages in box 1         AND you have... moving expenses    THEN... file Form 3903 showing all allowable  expenses,* but do not   show any   reimbursements. There are tax implications Covered in tax publication 521 - Moving expenses and Employers tax guide to Fringe Benefits related to moving expenses. From the Employers View: Moving Expense Reimbursements This exclusion applies to any amount you directly or indirectly give to an employee, (including services furnished in kind) as payment for, or reimbursement of, moving expenses. You must make the reimbursement under rules similar to those described in chapter 11 of Publication 535 for reimbursement of expenses for travel, meals, and entertainment under accountable plans. The exclusion applies only to reimbursement of moving expenses that the employee could deduct if he or she had paid or incurred them without reimbursement. However, it does not apply if the employee actually deducted the expenses in a previous year.   Deductible moving expenses.   Deductible moving expenses include only the reasonable expenses of: Moving household goods and personal effects from the former home to the new home, and Traveling (including lodging) from the former home to the new home. Deductible moving expenses do not include any expenses for meals and must meet both the distance test and the time test. The distance test is met if the new job location is at least 50 miles farther from the employee's old home than the old job location was. The time test is met if the employee works at least 39 weeks during the first 12 months after arriving in the general area of the new job location. For more information on deductible moving expenses, see Publication 521, Moving Expenses. Employee.   For this exclusion, treat the following individuals as employees. A current employee. A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Exception for S corporation shareholders.   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Exclusion from wages.   Generally, you can exclude qualifying moving expense reimbursement you provide to an employee from the employee's wages. If you paid the reimbursement directly to the employee, report the amount in box 12 of Form W-2 with the code “P.” Do not report payments to a third party for the employee's moving expenses or the value of moving services you provided in kind.  From the employees view: The not be included as income the expenses must be from an accountable plan: Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. Your expenses must have a business connection – that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Two examples of this are the reasonable expenses of moving your possessions from your former home to your new home, and traveling from your former home to your new home. You must adequately account to your employer for these expenses within a reasonable period of time. You must return any excess reimbursement or allowance within a reasonable period of time. Also what is interesting is the table regarding how to report IF your Form W-2 shows... your entire reimbursement reported   as   wages in box 1         AND you have... moving expenses    THEN... file Form 3903 showing all allowable  expenses,* but do not   show any   reimbursements.
"Yes, your tax bracket is 25%.  However, that doesn't mean that your take home pay will be 75% of your salary.  There is much more that goes into figuring out what your take home pay will be. First, you have payroll taxes.  This is often listed on your pay stub as ""FICA.""  The Social Security portion of this tax is 6.2% on the first $118,500 of your pay and the Medicare portion is another 1.45% on the first $200,000.  (Your employer also has to pay additional tax that does not appear on your stub.)  So 7.65% of your salary gets removed off the top. In addition to the federal income taxes that get withheld, you may also have state income taxes that get withheld.  The amount varies with each state. Also, the 25% tax bracket does not mean that your tax is 25% of your entire salary.  You step through the tax brackets as your income goes up.  So part of your salary is taxed at 10%, part at 15%, and the remainder is at 25%. The amount of federal income tax that is withheld from your paycheck is really a rough estimate of how much tax you actually owe.  There are lots of things that can reduce your tax liability (personal exemptions, deductions, credits) or increase your tax (investment income, penalties).  When you do your tax return, you calculate the actual tax that you owe, and you either get a refund if too much was taken out of your check, or you need to send more money in if too little was taken out." "IRA contributions are limited; you cannot ""dump the excess into a retirement account like an IRA"" if the excess is more than $5500. Furthermore, as @firefly points out, you need to have earned income (technical term is compensation and it includes self-employment income, not just wages) to contribute to an IRA, and the limit mentioned above is actually the lesser of your earned income and $5500. (There are other limitations for people with high gross income, but these likely will not affect you) On the positive side, if your earned income is small, you can contribute your entire taxable earned income including the money withheld by your employer for Social Security and Medicare tax and Federal, State and local income taxes to an IRA, not just your take-home pay. For example, if your earned income is $5500 and take-home pay after tax withholding is $5000, you are still entitled to contribute $5500. So, where do you get that withheld money from so that it can be put into your IRA? Well, it can come from the student loan or interest earned from a bank or from the dividends and capital gains on your investments, etc. Money is fungible; it is not the case that only the cash received (or deposited into your bank account) as your take-home pay can be contributed. Subject to other limitations mentioned, your earned income can be contributed, not just your take-home pay." "That $200 extra that your employer withheld may already have been sent on to the IRS. Depending on the size of the employer, withholdings from payroll taxes (plus employer's share of Social Security and Medicare taxes) might be deposited in the US Treasury within days of being withheld. So, asking the employer to reimburse you, ""out of petty cash"" so to speak, might not work at all.  As JoeTaxpayer says, you could ask that $200 less be withheld as income tax from your pay for the next pay period (is your Federal income tax withholding at least $200 per pay period?), and one way of ""forcing"" the employer to withhold less is to file a  new W-4 form with Human Resources/Payroll, increasing the number of  exemptions to more than you are entitled to, and then filing a new W-4 changing your exemptions back to what they are right now once when you have had $200 less withheld. But be careful. Claims for more exemptions than you are entitled to can be problematic, and the IRS might come looking if you suddenly ""discover"" several extra children for whom you are entitled to claim exemptions." If you know that your tax situation is not easily handled by the standard withholding table then you can use that line to ask for additional funds be withheld. You could also ask for less money to be withheld.   Why would somebody do this? They had a small side business that made them extra income, and wanted to withhold extra money from their full time job to cover the extra income. They might have been awarded a big bonus and it caused too much in taxes to be withheld so they wanted to not have as much taxes from their regular pay check. Given the fact that you are young, in your first real job, and almost the entire tax year ahead of you, it is likely that the standard tax tables will be close enough. So leave the line blank or put zero. One of the triggers for audit is when the IRS can't match 1099 income to the tax return. Whoever got the 1099 in her name should include that income on her return. "Not sure I understood, so I'll summarize what I think I read: You got scholarship X, paid tuition Y < X, and you got 1098T to report these numbers. You're asking whether you need to pay taxes on (X-Y) that you end up with as income. The answer is: of course. You can have even lower tax liability if you don't include the numbers on W2, right? So why doesn't it occur to you to ask ""if I don't include W2 in the software, it comes up with a smaller tax - do I need to include it?""?" I assume US as mhoran_psprep edited, although I'm not sure IRS necessarily means US. (It definitely used to also include Britain's Inland Revenue, but they changed.)  (US) Stockbrokers do not normally withhold on either dividends/interest/distributions or realized capital gains, especially since gains might be reduced or eliminated by later losses. (They can be required to apply backup withholding to dividends and interest; don't ask how I know :-) You are normally required to pay most of your tax during the year, defined as within 10% or $1000 whichever is more, by withholding and/or estimated payments. Thus if the tax on your income including your recent gain will exceed your withholding by 10% and $1000, you should either adjust your withholding or make an estimated payment or some combination, although even if you have a job the last week of December is too late for you to adjust withholding significantly, or even to make a timely estimated payment if 'earlier in the year' means in an earlier quarter as defined for tax (Jan-Mar, Apr-May, June-Aug, Sept-Dec). See https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes and for details its link to Publication 505. But a 'safe harbor' may apply since you say this is your first time to have capital gains. If you did not owe any income tax for last year (and were a citizen or resident), or (except very high earners) if you did owe tax and your withholding plus estimated payments this year is enough to pay last year's tax, you are exempt from the Form 2210 penalty and you have until the filing deadline (normally April 15 but this year April 18 due to weekend and holiday) to pay. The latter is likely if your job and therefore payroll income and withholding this year was the same or nearly the same as last year and there was no other big change other than the new capital gain. Also note that gains on investments held more than one year are classified as long-term and taxed at lower rates, which reduces the tax you will owe (all else equal) and thus the payments you need to make. But your wording 'bought and sold ... earlier this year' suggests your holding was not long-term, and short-term gains are taxed as 'ordinary' income. Added: if the state you live in has a state income tax similar considerations apply but to smaller amounts. TTBOMK all states tax capital gains (and other investment income, other than interest on exempt bonds), and don't necessarily give the lower rates for long-term gains. And all states I have lived in have 'must have withholding or estimated payments' rules generally similar to the Federal ones, though not identical. From the IRS: You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). It's not just that the particular money you take from the IRA isn't taxable.  It's not counted as part of your income at all, so it won't have any effect on the taxation of other income.