Understanding Form W-2: A Guide To The Wage & Tax Statement

What is a W-2 form?

A W-2 is an informational tax form issued by an employer that reports an employee's previous year's annual income, as well as the amount of taxes that were withheld from that income.

The form will report the amount of tax withheld for each tax category separately and in total, which you previously determined with an employee's W-4 form.

Understanding the W-2

A W-2 can be broken down into three parts: the left side of the form, the right side of the form, and the bottom of the form - each with its own specialty. 

The left side of the form reports the personal information of the taxpayer such as social security number, employer EIN, and employer address.

The right side of the form reports employee earnings and federal tax information.

The bottom of the form reports state and local tax information.

An example of a completed W-2 form

What does each box on the W-2 report?

Each box on the form serves its own purpose in reporting important information about your earnings. Some boxes also contain special codes given by the IRS to give more information about their source. While at first glance, the form may seem like a confusing mix of numbers, breaking down the form box by box helps decipher each intention.

Box 1 amount of earnings received in wages, tips, and other compensation
Box 2 amount of federal income tax withheld
Box 3 amount of earnings from Box 1 subject to social security tax
Box 4 amount of social security tax withheld
Box 5 amount of earnings from Box 1 subject to medicare tax
Box 6 amount of medicare tax withheld
Box 7 amount of reported tip earnings subject to social security tax
Box 8 amount of tips not reported, now allocated to you by the employer
Box 10 amount of dependent care benefits
Box 11 amount distributed by your employer’s deferred compensation plan
Box 12 provides more detail about the total amount reported in Box 1 via codes determined by the IRS
Box 13 indicates if earnings were taxable
Box 16 amount of earnings subject to state income tax
Box 17 amount of state income tax withheld
Box 18 amount of earnings subject to local tax
Box 19 amount of local tax withheld
Box 20 name of the city or state relevant to Box 19

 

Box 12  - What do the letter codes mean?

If an amount is reported in Box 12, it will come alongside an IRS assigned letter code that helps to identify the source of the compensation or benefit. This information can be needed to help file your personal income tax return, so it is important to note what is listed.

Here are two of the common Box 12 codes:

  • Code D - reports elective deferral program contributions such as 401k or SIMPLE
  • Code DD - reports the cost of employer-sponsored healthcare, but is not taxable to the employee
    • Just because Code DD is not taxable to you as an employee does not mean you should not enter it on your tax return. You should still enter the full amount of your employer-sponsored healthcare on your tax return if it is reported on your W-2.

Form W-2 Box 12 Code Examples

 

Who receives a W-2?

If you are or were an employee of a business or company in the past year and earned more than $600, you should receive a W-2.

Employers are legally required to send W-2 forms to all salaried employees, so independent contractors, freelancers, and other self-employed workers will receive a Form 1099 instead of a W-2. 

How do I get a W-2?

If you are an employee, your employer will either mail you a copy of your W-2 or make the form available to you online. If you are looking for a W-2 that was attached to a previously filed tax return, you can order a second copy of the needed return from the IRS via Form 4506.

If you are an employer, you can order W-2 forms from the IRS or from an office supply store.

It is important not to print or use the W-2 forms that are available online on the IRS website, as these forms are for sample purposes only, and not for official filing.

When should I receive my W-2?

You should receive a W-2 form by Mid-February, as employers are required to mail them to you on or before January 31 according to IRS tax deadlines. If you would like to receive your W-2 earlier, for example when you leave a job, you can request the form from your employer and they will provide one to you within 30 days.

If you have not received a W-2, it may be that you earned less than $600 for the year from your employer. If you feel that you are missing a W-2, you can reach out to your employer and ask for a copy, report the form missing to the IRS, or file substitution via Form 4852. It is important not to file your taxes without a W-2 if you know you are missing the form.

What do I do with a W-2?

For employees, your W-2 is crucial when filing your annual tax return, as it provides vital information for filing and is required by the IRS to be attached to the front of your Form 1040. You will also notice that you have received multiple copies of the form, each of which gets filed differently. Whether you are going to prepare your taxes on your own or use a tax preparation service, the information provided on your W-2 will be important to the filing of your taxes.

Before filing or sending:

  • Check for accuracy - make sure that all personal information is listed correctly on the form, such as Social Security numbers, name spelling, and address
  • Make sure you have all needed W-2s - if you have had multiple jobs over the year, you will receive multiple W-2s which may not all arrive at the same time

What to do with each copy of the W-2:

Copy Employer Employee
Copy A File with W-3 to Social Security Administration (SSA) -
Copy B Send to employee Attach to federal income tax return
Copy C Send to employee Keep with your documents for at least four years
Copy D Keep with your documents for at least four years -
Copy 1 File with state tax return -
Copy 2 Send to employee Attach to state tax return

 

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Common W-2 Errors

Employers

When filling out W-2 Forms for your employees, you may fall victim to some of these common mistakes. 

  • Sending forms late - Forms are required to be sent on or before January 31. If you send a form late or don't send one at all, you can be fined between $50 - $260 per missing form depending on the length of time.
  • Filing with the IRS - W-2's are filed with the Social Security Administration (SSA), not the IRS. You can file the form online or by mail, but as of filing 2020, if you file more than 250 forms per year, you must file the forms online unless you are given a waiver.
  • Using an incorrect year's form - A W-2 is filed for the year that the earnings were taxable, so make sure to choose the form that correct year.
  • Printing the form from the IRS website - The W-2 forms available on the IRS website are for example purposes only and are not for filing. 
  • Formatting errors - The form is required to be printed in black ink (not handwritten), using font size 12, no dollar signs used, and decimal places with cents. It is also important not to fold or staple any form.

Employees

There are some errors that can arise on your W-2. Here are some of the mistakes to check for on your form.

  • Misspelled name
  • Incorrect Social Security Number
  • Incorrect wages - While at first glance it may seem that your wages are incorrect, it is always important to double-check to make sure. Reported earnings may be different than expected due to taxes and benefits.

What do I do with an incorrect W-2?

If you receive an incorrect W-2 form, don't panic. You can report the mistake to the IRS, file a substitute form via Form 4852, and consult a tax specialist for help with what to do next.

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Posted: 30 Dec, 2019

The Ageras authors don't provide any personal advice with regard to financial or fiscal matters - but accountants do. Fill in the form and receive non-binding quotes for professional tax advice.

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