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W-2 Simplified: Your Guide to Form W-2

iconPayroll Taxes icon4 min read
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Tax season is upon us and of all the forms employees, CPAs, HR professionals, and accountants prioritize, the W-2 is at the top of the list. The W-2, formally known as the IRS Wage and Tax Statement, doesn’t have to be challenging. As long as you receive your W-2 in time and the individual forms are filled out correctly, your tax season shouldn’t be a problem. Let’s take a look at the W-2.

What is the W-2, and what is it used for?

The W-2 is the primary form used when people file their annual tax returns. The document summarizes an employees’ annual compensation and deducted taxes, and is a significant factor in determining how much individuals will receive for their tax returns. People also use W-2s to validate how much someone makes in a given year, such as mortgage lenders, bank officers, and property managers.

So it’s critical your W-2 is filled out correctly and you receive it in a timely fashion before tax deadlines. According to the Social Security Administration, “January 31st is the deadline to file W-2s using Business Services Online or to submit paper Form W-2. January 31st is the deadline to distribute Form W-2 to employees.”

Many midsize and large businesses choose to outsource this task to make sure their employees receive their W-2s on time.

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What does a W-2 look like?

The Form W-2 is broken up into two sections. The first is lettered boxes detailing personal and employer information. This section consists of boxes lettered “a” through “f” and is relatively straight forward.

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The second section consists of numbered boxes “1” to “20.” These contain important financial information and must be entered in correctly when filing tax returns. Let’s take a detailed look at each box.

Box 1 contains your federal income tax wages for the year, and Box 2 shows the amount of taxes withheld from those wages. This wage is calculated from all paychecks issued from January 1st through December 31st of the W-2 year.

Box 3 contains social security wages and box 4 are the taxes withheld from those social security wages. Box 5 details your Medicare wages and box 6 are the taxes on the Medicare wages.

Boxes 7 and 8 apply to employees who receive tips. Box 7 is used to record any tips that had unpaid social security taxes. Box 8 details allocated tips from large food or beverage establishments.

Box 9 is for employers who participate in the IRS’s W-2 Verification Initiative. If your employer does not use this feature, it will be blank.

Thrilling right? Perhaps not, but it’s not as complicated as it first appears. We’re nearly done! Just a few more boxes to go.

Box 10 reports flexible spending (FSA) for dependent care.

Box 11 details distributions to an employee from a nonqualified deferral plan or nongovernmental section 457(b) plan.

Box 12 is its own can of worms and is used to highlight specific situations and amounts. Rather than going into even more painstaking detail about it, you can read more here on the IRS’s website about Box 12.

Box 13 contains three sections with checkboxes. The first is a statutory employee: employees whose earnings are subject to Medicare and social security taxes but are not subject to federal income tax withholding.

Retirement plan: Checking this box alerts the IRS you could contribute to a retirement plan like a 401(k). Doing so can limit your ability to receive tax incentives for other retirement options like an IRA.

Third-party sick pay: The third checkbox should only be checked by third-party sick pay payers filing on behalf of an insured employee or an employer reporting sick pay payments by a third party.

Box 14 is applicable for employees whose income includes 100% of a vehicle’s annual lease value.

Box 15 is the employer’s state identification number.

Box 16 is used to report state income taxable wages. Each state has different income tax rates and yours will be dependent on which state you live in.

Box 17 is used for your state tax return and details state withholdings for the year.

Box 18 is similar to Box 16 and used to report wages for local taxes. Just like individual states, your local taxes have specific rules determining what is taxable.

Box 19 reports local withholding for the year.

Box 20 is the identification of the locality for the tax.

Why You Should Care About Understanding Your W-2

Hardly anything about tax season and tax documents is easy to understand, but each piece of information listed on your W-2 has a specific purpose and will assist you in understanding a piece of the tax filing process. By having a better understanding of what is on your W-2 means you’ll be clued in as to how your payroll deductions and contributions impact your personal taxes and ultimately the best part about tax season: your return!


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