Taxable income: when accrued or when paid

I just received my last paycheck of 2006 in 2007. My company has reset all of my totals and started taking out my 401K contributions again (already at maximum contribution
for 2006). I thought that taxes were paid on wages earned in a year not paid in a year. Is this the correct way to report my income? thanks
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It's not your last paycheck of 2006, it's your first paycheck of 2007. Your employer is doing it correctly. Taxes, withholding, and 401(k) contributions are based on when the income is paid to you, not when you earn it. That's how it will be reported on your W-2, and that's how you report it on your tax return. Bob Sandler
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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They're right, you're wrong. Date paid is what matters.
-- Phil Marti Clarksburg, MD
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Steve wrote:

Yes, this is the correct way to report your income. Most individuals are cash basis taxpayers; cash basis taxpayers report income when received, NOT when earned. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Steve wrote:

Most individual taxpayers are on a "cash basis" accounting. The check you received in 2007 (even if for the last part of 2006) is 2007 income. Your company is doing this correctly. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Payroll is a taxable event in the year in which it's first made available to you. So if you were able to pick up your check in December, but you were out on vacation till January, it's December income. And, if they don't cut checks every two weeks, and they delay payment for a week, all two weeks worked fall in December, but the actual pay date falls in January, it's January income. -- Paul Thomas, CPA snipped-for-privacy@bellsouth.net
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Steve wrote:

When paid, the date of the check.
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Steve wrote:

In my experience, I've always had the tax year "reset" after the last pay date of a particular year. In other words, the first paycheck of 2007 may be fully or partially paid due to work in 2006, but counts as 2007 income, because it's paid in 2007. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Steve wrote:

Individuals, with extremely rare exceptions, are cash method taxpayers. You pay tax on the wages you receive, not what you earn. The employer probably accounts for its expense on an accrual basis, for its own tax and book purposes. But it properly files its payroll reports, including W-2's, on a cash basis. Your W-2 should agree with the pay stub you received with the last paycheck you got in 2006. Katie in San Diego
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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It doesn't hurt to note that even if the employee is an accrual-basis (or non-December fiscal year) taxpayer, the employer reports the same way. The employee does all the adjusting for accrual basis. (FICA/Medicare are based solely on date paid.) The withholding credit is not allocated but all goes on the return for the employee's tax year beginning in the withholding year. -- Phil Marti Clarksburg, MD
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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What is the date on the check?
-- Vic Roberts Replace xxx with vdr in e-mail address.
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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For a cash-basis taxpayer, what counts is the date paid.
Seth
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Steve wrote:

Yes, payroll reporting is always on a cash basis. For financial reporting, they may well have accrued expenses for 2006, but that is not relevant to your paycheck. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Steve wrote:

Use the W-2 values otherwise you will have to request the employer to change the W-2. If you do not use the W-2 information the IRS WILL COME KNOCKING on your door. they do match the W-2's to the 1040 that you file... Jerry Doblie Jerry Doblie, CPA; MS Tax 14045 Sunnyside Ave N Seattle, WA 98133 206-365-0143
<< ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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