How to Find Tax Liabilities on a W-2
Your W-2 shows taxes already paid, not your final bill. Learn to interpret its figures to understand how your total tax liability is calculated.
Form W-2, the Wage and Tax Statement, is a year-end summary of your earnings and withheld taxes provided by your employer. It is sent to you and the Internal Revenue Service (IRS) by January 31st each year. The form details what you earned and what you have already contributed toward your tax obligations.
Identifying Your Taxable Income on a W-2
Box 1, labeled “Wages, tips, other compensation,” shows your total income subject to federal income tax. This figure is calculated from your gross earnings after pre-tax deductions, like contributions to a 401(k) or health insurance premiums, have been subtracted. This amount is directly transferred to your Form 1040.
The income in Box 1 may differ from other boxes. Box 3 shows your “Social Security wages,” and Box 5 reports your “Medicare wages and tips.” These figures are often higher than Box 1 because they include pre-tax retirement contributions, which are still subject to Social Security and Medicare taxes even though they lower your federal income tax.
The Social Security Administration sets an annual wage base limit for taxation, so wages above a certain threshold are not subject to Social Security tax. This can cause the amount in Box 3 to be different from Box 5 for some earners. Medicare tax does not have a wage base limit.
Locating Taxes Withheld on Your W-2
Your W-2 shows the tax payments made on your behalf, which are installments paid from each paycheck, not your total tax bill. Box 2, “Federal income tax withheld,” shows the total you have paid toward your federal income tax based on your Form W-4 information.
Box 4, “Social Security tax withheld,” shows the total Social Security tax paid, based on your Social Security wages up to the annual limit. Box 6, “Medicare tax withheld,” shows the amount paid toward Medicare, based on all your Medicare-eligible wages.
Box 17 shows the total “State income tax” withheld, and Box 19 reports any “Local income tax” withheld. These amounts are based on the wages in Box 16 and Box 18, respectively. These wage amounts may differ from Box 1 because states can have different rules for pre-tax deductions.
Understanding Other Key Information Boxes
Box 12 uses single or double-letter codes to report various financial details. For instance, Code D indicates contributions to a 401(k) plan, while Code DD reports the cost of your employer-sponsored health coverage. The health coverage amount is for informational purposes and is not taxable.
Box 14, labeled “Other,” is a space for your employer to report items that do not have a dedicated box. Common entries include payments for state disability insurance, union dues, or employer-provided tuition assistance. The taxability of these amounts can vary, so it is important to understand what each figure represents.
Box 13 has three checkboxes that can be marked if applicable: “statutory employee,” “retirement plan,” and “third-party sick pay.” The “retirement plan” box being checked affects your eligibility to deduct contributions to a traditional IRA.
Using Your W-2 to Determine Final Tax Liability
The Form W-2 itself does not state your final tax liability or if you will receive a refund; it provides the data to calculate that outcome. The process begins by transferring the income from Box 1 of your W-2 to your Form 1040, the U.S. Individual Income Tax Return. This amount is the starting point for calculating your adjusted gross income (AGI).
After entering your income on Form 1040, you will adjust it by claiming any eligible deductions, like those for student loan interest. From your AGI, you will subtract either the standard deduction or your itemized deductions. This calculation determines your taxable income, which is then used with the tax brackets to find your total tax liability for the year.
Compare your total tax liability to the federal income tax already paid, found in Box 2 of your W-2. If the amount in Box 2 is greater than your total tax liability, you are due a refund. If the withheld amount is less than your liability, you will owe a balance to the IRS.