While on my Christmas break, I was working for an employer that I’ve worked for several times before, including earlier this year. Anyway, the deal at this job is that you get paid every week, with the week being Friday to Thursday, but the pay is always a week late. So, for example, if you work from January 7, 2005 to January 13, 2005, you get paid for that week on January 21, 2005. Anyway, when looking at my pay stubs for the last two weeks I’ve gotten paid, the first one (payday being December 31st) had the cumulative total for the entire year, while the second one (payday January 7) had a brand new total starting with that check. So my question is, do you report income in the period that it was worked or in the period in which you get paid?
Most individuals work on a cash basis rather than an accrual. So, when the cash is in your hand, that’s when you claim it. The bottom line though, whatever your employer reports on your W-2 is what you will be liable for in the eyes of the IRS.
Gosh, one question I can answer and someone beats me to the punch. Yes, unless you’ve incorporated or taken steps to change your reporting basis (which ain’t easy to do), you almost certainly are meant to report on a cash basis. Most companies report on an accrual basis, meaning they have income when they earn it, not when it’s paid. (But there are write-offs for bad debt and such that are beyond the scope of the question.)
–Cliffy
All right, report on a cash basis. No problem. (This is what I get for taking one basic accounting class. I start thinking in terms of accural instead of cash basis.)
The other posters have it spot on.
On this note, if you have stopped working for that company and only recieved a single check in the calendar year, you will still recieve a W2 (or 1099) for the year including the “last” check. Make sure you get it in CY 2006 for your CY2005 taxes.
-Butler (who knows this from personal experience, I left a job once on Dec 31, and started the new job on Jan 2. I had to make sure to get the W2 from Company A.)
-Butler