Do you understand your W-2 form?
A W-2 form is issued by an employer to an employee. An employer has certain reporting and retention requirements for employees that differ from those of an independent contractor.
The threshold for issuing a W-2 form is the amount of money earned, it is not the time worked. Each employer that pays at least $ 600 including tax deductions must issue a W-2 form. However, if any tax, including those for Social Security or Medicare, is withheld, a W-2 form must be issued regardless of how much was paid to an employee.
There are several copies of a W2 that the employer must prepare. Copy A is transmitted to the Social Security Administration (SSA) along with a W-3 form ( W-3 form reports the total of all W-2 forms that were given to employees). The deadline for employers to submit the information to the SSA is February 28.
Copy 1 is sent to any state or local tax department if applicable. Copy D is retained by the employer and copies C, B and 2 are retained by the employee.
As an employee, you get three copies of your W-2 form. These three copies must be issued by January 31 of each year by the employer. Copy B is used to report your federal income tax and is generally filed with your federal tax return (but not normally sent to the IRS). Copy 2 is used to report your income to the state, city, or locality and must be filed with the relevant tax authorities (you do not need to do anything with this copy, when you filed your tax return it will get to the appropriate department). Copy C is for your records (you must keep copy C for at least three years after filing your tax returns).
We will now describe each of the boxes in a W2 for your understanding:
The left side of the form is for taxpayer information. The right side of the form is used to report taxpayer income and codes. The bottom of the form provides local and state information.
On the left side of the form you will find:
Box a. Social Security Number (SSN) of the taxpayer, if it is not correct, you must request a new W-2 form from your employer.
Box b. Your employer’s identification number (EIN)
Box c. The legal address of your employer
Box d. The tracking number is an internal number used by your employer or your employer’s payroll department. If your employer does not use control numbers, box (d) will be blank.
Box e and f. These appear as a large block in your W-2 form. Your full name is indicated in box (e). It is supposed to reflect the name on your Social Security card. If your name is not exactly as it appears on your Social Security card, you may need a new W-2 form. Your address is indicated in box (f). If your address on the W-2 form is incorrect, notify your employer: You will not need a new W-2 form, but your employer must update your records.
On the right side of the form you will find:
Box 1. It displays the total of your salary plus other income from bonuses, prizes and other taxable remuneration. It does not include retirement plans, pre-tax benefits or payroll deductions.
Box 2. Report the total federal income tax withheld from your salary during the year. This amount is determined by the elections on your W-4 form based on exemptions and any additional withholding. If you find this number too low or too high, you will want to make an adjustment to your W-4 form for next year.
Box 3 and 5 Displays your total salary subject to Social Security and Medicare tax. This figure is calculated before any payroll deduction.
Boxes 4,6 and 8 represent the tax deductions of boxes 3.5 and 7.
Box 12. Reports one or two-letter code followed by an amount of money, these are the types of compensation and benefits an employee could receive during the year
Box 13. It is a series of three boxes. Your employer will check the box if you participated in your employer’s retirement plan during the year or if you received a sick pay under your employer’s insurance policy.
Box 14. This is a “catch all” box. Your employer reports anything that does not fit elsewhere on the W-2 form. Examples include state disability insurance taxes, union dues, deductible health insurance premiums, and nontaxable income.
At the bottom of the form you will find:
Box 15. It is very simple and includes the tax and state identification number of your employer. If you work in a state without reporting requirements, this box (along with boxes 16 and 17) will be blank. If it is subject to state taxes, box 16 will indicate the total amount of wages subject to tax for state tax purposes. If you have the wages reported in box 16, box 17 will show the total amount of state taxes withheld during the year.
Box 18. If you are subject to local, municipal, or other state taxes, you will report them in this box. If you have wages subject to withholding in more than two states or locations, your employer will provide an additional W-2 form.
If you have wages in box 18 subject to local, city, or other state taxes, any withholding amount will be reported in box 19.
Box 20. is the name of the local, municipal or other state tax that is reported in box 19.