With tax season in full swing, there’s a lot you need to understand about your taxes. Here’s a helpful guide on how to read a W-2.
Tax season is here and in full swing. Taxes and stress seem to go together for most people. We have to do our taxes, so it’s time to conquer your stress and get them done.
Your W-2 is one of your most important and critical of all tax documents. Do you know how to read a W-2? Here’s a helpful guide to help you understand how to read this vital form.
What is the W-2 Form?
This IRS form is called “Wage and Tax Statement.” It reports an employee’s income from the previous year and tax withholdings.
Your employer sends these forms in January to employees and the IRS. This is the main form you use to prepare tax returns.
- W-2 is Different Than W-4
Don’t mix up the W-2 with the W-4. The W-4 is the form you give to your employer with the amount of tax to withhold from each paycheck. This is a form for your employer only.
Freelancers or contractors do not receive W-2 forms because they are not considered employees. They will get a 1099 form for income.
- Left Side of the Form is Taxpayer Information
This box has your identification number—Social Security Number (SSN). Be sure to double-check that the number is correct. The entire number should also be in this box.
If it is incorrect, ask for a new one from the employer as soon as possible because this could slow down your return’s processing. If you had to get a new form, the number will change to W-2c.
You will find the employer’s EIN number. This identification number is similar to your SSN at an employer level.
The employer’s address is in box (c). This should be the legal or main address of your employer. It may not be the location you work if you work at a branch or other location.
This is the control or internal number for your employer’s payroll department uses. Not all employers use these numbers, so it’s okay if it is empty.
Boxes e and f
These boxes appear as one cluster on your form. The box contains your full or legal name, which is the one on your Social Security (SS) card. You may not see suffixes if you don’t have them on your SS card.
Make sure your name is the same here as on your SS card. If it is different, you will need to get a new W-2. If you need to update your SS card, you will have to do that separately like if you got married or changed your name.
Your address is in box (f). This should be your mailing address. A P.O. box number is okay for your address.
If your address is not correct, tell your employer. Good news—you will not have to get a new W-2 form. Your employer will update your records to avoid future mistakes.
- Right Side Reports Dollars and Codes
Your W-2 has more than your pay. It also lists how much you contributed to your retirement plan, how much your employer contributed to health insurance, and dependent care benefits.
This determines your overall taxes, but some items may not be taxable like retirement contributions.
Box 1: Lists your wages, compensation, and tips.
Box 2: States the federal income tax withheld.
Box 3: States the amount of your pay that is eligible for Social Security tax.
Box 4: Lists the amount of Social Security tax withheld from pay.
Box 5: States how much of your pay is subject to Medicare tax.
Box 6: Lists the Medicare tax withheld from your pay.
Box 7: Indicates how much tip income you reported.
Box 8: Shows the amount of tips your employer paid you.
Box 10: Lists the dependent care benefits from your employer.
Box 11: Shows much money you received from your employer’s deferred compensation.
Box 12: This area shows more details about the pay reported. This can be the amount contributed to your 401(k) for example.
Box 13: This indicates if your earnings are subject to taxes like Medicare and Social Security but not federal income tax withholding. It also includes any other information like sick pay and retirement plans.
Boxes 16-19: These boxes are for state income tax information including amount withheld, amount subject to local tax, and how much local and state tax was withheld.
- Employee W-2 Obligations
You are required to report all wages for your annual tax returns. The minimum amount required to report is $600 in earnings.
- W-2 Formats
The IRS mandates that employers send W-2s to employees by January 31. This means they need it in the mail by that date, so you could receive the first week of February.
Some employers send W-2s electronically or offer the W2 online.
If you worked anytime that previous year for any employer, you will get a W-2 form. Your former employer can send you the W-2 form around January 31.
If you know someone who passed away, he or she will still get a W-2 if employed the previous year.
- The IRS Has a Copy of Your W-2
Your employer is legally required to send additional copies of your W-2 to the IRS and Social Security Administration. This is how your information is checked, so they can compare your return to the form they have.
Your state and local tax authorities also have copies of this form.
- There Could Be Errors
Be sure to check your W-2 for errors. It is possible. You want to make sure you send the right information to the IRS.
You need to get a corrected form from your employer and not update it on your tax return. The IRS checks your information against the W-2 form.
A good way to check this information is to use your last pay stub from the year. Your pay will be a little lower on this form, but it is a good way to check the information to make sure your W-2 is in line.
Final Thoughts on How to Read a W-2
These are the basics of how to read a W-2. It’s always important to double-check all the details and make sure your address, income, withholdings, and SSN are correct. Report any errors to your employer immediately to get a new form.
Keep checking out our site for other useful information on topics such as reading a paystub, automating the employee payment process, and other apps to help you automate other areas of your business.