Dec 18, 2024

Understanding IRS Form W-2

Form W-2 is the wage and tax statement that employers give to employees and to the IRS to show each employee's income earned and taxes withheld. Read through to better understand how the government uses the form.

Each year, businesses give a W-2 form to each employee. The W-2 shows all taxable wages paid to the individual during the calendar year. The W-2 also includes information on tax and other withholdings. When the employee files their taxes, they input the data from the W-2 onto their Form 1040. Employers must give W-2s to employees on or before Jan. 31 so that individuals have time to file their taxes before the April 15 deadline.

Each W-2 includes the same information, often divided into separate local, state and federal sections:

• Information about the company, including the business's employer identification number for the federal return and its state ID number, if different, for the state return
• The employee's income from the previous year
• Taxes withheld, separated into withholding for federal income tax and Social Security tax
• Tips, if any, that the employee earned that year
• Fringe benefits such as health insurance contributions, adoption assistance, dependent care assistance and health savings account contributions

The IRS also receives a copy of each employee's W-2.

After entering W-2 data onto Form 1040, employees determine their tax liability or refund. If the income reported on Form 1040 differs from the W-2, the IRS may flag the return for review. Taxpayers must report all earned income, including wages, salaries and tips, even if they are not included on the W-2.

The W-2, box by box

When businesses look at Form W-2, they'll see numbered and lettered boxes to fill out:

• Boxes a, e and f show the employee's Social Security number, name and address.
• Boxes b, c and d are for the employer's information, including its EIN and address.
• Box 1 shows taxable income, including wages, salary, tips and bonuses.
• Box 2 reports federal income tax withheld.
• Box 3 details earnings subject to Social Security tax.
• Box 4 shows the amount of Social Security tax withheld.
• Box 5 indicates earnings subject to Medicare tax.
• Box 6 shows the amount of Medicare tax withheld.
• Boxes 7 and 8 report tip income, if any, subject to tax.
• Box 9 is left blank — it was previously used for a now-discontinued credit.
• Box 10 reports dependent care benefits received, if applicable.
• Box 11 reflects deferred compensation from nonqualified plans.
• Box 12 shows other types of compensation or deductions, e.g., contributions to a 401(k) plan, indicated by letter codes found in the instructions.
• Box 13 highlights pay not subject to federal income tax withholding, such as employer-sponsored retirement plans and/or sick pay via a third party, such as an insurance policy.
• Box 14 contains additional tax information, such as state disability insurance and/or union dues.
• Boxes 15-20 are used for state and local taxes, including how much income is subject to these taxes and how much was withheld.

Note that the IRS may make slight design changes each year. Fortunately, the software packages that help you fill it out typically keep up with these modifications.

The W-2 form may be found on the IRS's website. Additionally, using Form W-3, the employer reports to the Social Security Administration the total amount in Social Security and Medicare taxes that were withheld for each employee. The SSA shares this information with the IRS and uses the data to calculate each employee's future Social Security benefits.

As deduction amounts and withholdings change frequently, employers are encouraged to consult with tax professionals to stay current on IRS guidelines.

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