What Does a W-2 Mean for an Employee?

A W-2 form is an annual wage and tax statement that documents an employee’s income and the taxes withheld from their paychecks throughout the year. It is used for preparing and filing federal, state, and local income tax returns, summarizing an employee’s earnings and contributions.

Understanding the W-2 Form

The W-2 form is issued by employers to report an employee’s annual wages and the total amount of taxes withheld during the calendar year. Employers are required to furnish W-2s to employees by January 31st of the year following the reporting year.

Multiple copies of the W-2 form are generated, each serving a distinct purpose. Copy B is for federal tax filing, Copy C is for personal records, and Copy 2 is for state or local income taxes. Employers also send copies to the Social Security Administration, which shares the information with the IRS.

Decoding Your W-2 Boxes

The W-2 form contains various boxes, each providing specific details about an employee’s compensation and taxes. Box 1, “Wages, tips, other compensation,” reports the total taxable wages, tips, bonuses, and other compensation for federal income tax purposes. This amount may differ from an employee’s gross earnings due to pre-tax deductions for items like health insurance premiums, retirement plan contributions, or flexible spending accounts. Box 2 shows the total federal income tax withheld.

Box 3, “Social Security wages,” indicates the portion of an employee’s wages subject to Social Security tax. There is an annual wage base limit for Social Security tax. Box 4, “Social Security tax withheld,” reports the actual amount of Social Security tax deducted from the employee’s pay, typically 6.2% of the Social Security wages up to the annual limit. Box 5, “Medicare wages and tips,” details the wages subject to Medicare tax, for which there is no annual wage limit. Box 6, “Medicare tax withheld,” shows the total Medicare tax deducted, generally 1.45% of Medicare wages, with an additional 0.9% for wages above $200,000.

Box 12 often contains various codes and amounts that represent different types of compensation or benefits, such as elective deferrals to 401(k) or 403(b) plans, or the cost of employer-sponsored health coverage. These codes are important as they can impact an employee’s taxable income or provide informational details. Box 16, “State wages, tips, etc.,” reports the total taxable wages earned in a particular state. This figure can differ from Box 1 because states may have different rules for what constitutes taxable income. Box 17, “State income tax withheld,” shows the total state income taxes deducted. For employees in areas with local income taxes, Box 18, “Local wages, tips, etc.,” reports wages subject to local tax, and Box 19, “Local income tax withheld,” shows the amount of local income tax withheld. Box 20 provides the name of the locality.

Using Your W-2 for Tax Filing

The W-2 form is the primary document an employee uses to prepare federal, state, and local income tax returns. Information from specific boxes on the W-2 is directly transferred to tax forms, such as Form 1040 for federal income tax.

Tax software programs and professional tax preparers utilize the data from the W-2 to accurately calculate an individual’s tax liability. This information helps determine whether an employee has overpaid their taxes and is due a refund, or if they owe additional taxes. If an employee worked for multiple employers during the year, they will receive a separate W-2 from each employer. It is necessary to report income and withholding from all W-2s to ensure a complete and accurate tax return.

Common Employee W-2 Scenarios

If an employee discovers an error on their W-2 form, they should contact their employer’s payroll or human resources department to request a corrected W-2, known as a Form W-2c. Employers are responsible for issuing these corrected forms. If a W-2 is not received by the January 31st deadline, an employee should first contact their employer.

Employees who worked for more than one employer during the tax year will receive multiple W-2s. All of these forms must be used when filing their tax returns to report all income and withholding. Additionally, many employers now offer the option to receive W-2 forms electronically.