What Are My Tax Liabilities on a W-2?
Your W-2 details the tax you've already paid, but your final tax liability is determined on your return. Learn how these numbers connect to your refund or balance due.
The Form W-2, Wage and Tax Statement, reports an employee’s total earnings and the amount of taxes withheld during the calendar year. Employers must send this form to employees on or before January 31st of the following year. This document is used for preparing an individual’s annual income tax return, as it summarizes income and tax payments made on the employee’s behalf. The Internal Revenue Service (IRS) also receives a copy to track income and verify the accuracy of filed tax returns.
Understanding Your Reported Income and Withholdings
The W-2 form contains several numbered boxes detailing your earnings and tax withholdings. Box 1, “Wages, tips, other compensation,” shows your total income subject to federal income tax. This figure includes your base salary, bonuses, tips, and certain taxable benefits, reduced by pre-tax deductions like 401(k) contributions or health insurance premiums. Box 2, “Federal income tax withheld,” reports the total federal income tax your employer paid to the IRS from your paychecks.
Your W-2 also breaks down payroll taxes for Social Security and Medicare. Box 3 shows the wages subject to Social Security tax, which has an annual limit of $176,100 for 2025. Box 4 displays the total Social Security tax withheld, calculated at 6.2% of the wages in Box 3.
Box 5 reports your wages subject to Medicare tax, and unlike Social Security, there is no wage limit. Box 6 shows the Medicare tax withheld, calculated at 1.45% of the wages in Box 5. For higher earners, an Additional Medicare Tax of 0.9% applies to wages over $200,000 for single filers. Boxes 16 and 17 provide similar information for state income tax, showing your state wages and the amount of state income tax withheld.
Differentiating Withholding from Total Tax Liability
It is important to understand the difference between the tax withheld from your pay and your total tax liability. The amount in Box 2 of your W-2 represents tax withholding, which are prepayments made toward your annual tax bill. This withholding is an estimate based on the information you provided to your employer on Form W-4, such as your filing status and any claimed dependents or deductions.
Your total tax liability is the actual amount of tax you owe the government for the entire year, calculated when you complete your annual tax return like Form 1040. It is determined by your total income from all sources, adjusted for various deductions and credits you may be eligible for. Think of withholding as making installment payments on a purchase, while the total tax liability is the final price after all adjustments are applied.
Using Your W-2 to Determine Your Final Tax Outcome
The information on your W-2 is transferred to your annual tax return to calculate your final tax obligation. You will input the figure from Box 1 as your starting income on Form 1040. This income is then reduced by either the standard deduction for your filing status or by itemized deductions, resulting in your taxable income.
Once your taxable income is established, tax rates are applied to calculate the tax you owe. This amount can be further reduced by any tax credits you are eligible to claim. The final step is to compare this calculated total tax liability to the federal income tax already paid, which is the amount in Box 2 of your W-2.
This comparison determines the outcome of your tax filing. If the amount in Box 2 is larger than your total tax liability, the difference is issued as a tax refund. If the amount in Box 2 is smaller, you must pay the remaining balance to the IRS by the tax filing deadline.