Whether you’re an employee or an employer, learning how to file your taxes can be confusing. However, there are a few basic forms that everyone should know about, including the W-2 form.
A W-2 form tells the government how much an employee earned throughout the year and how much taxes were taken from each paycheck.
Most business owners with full or part-time employees need to give a W-2 form to each worker. Employees use W-2 forms to file their personal income taxes every year.
If you’re an employee, the IRS uses the information on your W-2 form (or forms, if you have multiple employers) to determine whether you owe taxes or should receive a tax refund.
Income Tax Basics
Before we dive into more details about the W-2 form, let’s get a quick overview of why employees file personal income taxes every year.
If you’re an employee, you’re required to pay taxes on your income, and the amount you owe is known as your tax liability. Your tax liability depends on your tax bracket and taxable income, or adjusted gross income (AGI).
In a progressive tax system, like the U.S. tax system, people who earn more fall into a higher tax bracket and are subject to a higher tax rate.
However, since you don’t know your total taxable income until the end of the year, you pay estimated taxes throughout the year. Or your employer automatically withholds a portion of your income from each paycheck and puts it toward your tax payments.
That’s why you’ll see that your paychecks have your total income, deductions, and net pay. The “deducted” portion that you don’t receive is a tax estimate that goes to the IRS on your behalf.
At the end of the year, the government uses your W-2 information to compare your estimated tax payments to what you actually owe.
You'd get a refund if you paid more than you owed throughout the year. But if your estimated payments are less than your total tax obligation, you’ll need to pay the difference.
Introducing the W-2 Form
IRS Form W-2 is also known as the wage and tax statement because it summarizes an employee’s total wages for the previous tax year. It also tells the IRS how much taxes were withheld from that employee’s paycheck.
What Is the Purpose of a W-2 Form?
Employees use a W-2 tax form to file their federal and state personal income taxes. It tells the IRS how much income they earned from each employer over the past year and how much income was withheld from their paychecks to pay for taxes and other employee benefits.
Who Files a W-2 Form?
Any employee who receives more than $600 from their employer during the year should get a W-2. W-2 forms are used to report regular and statutory employees’ tax information, like total earnings, state/federal income tax withholding, pre-tax contributions, and any other information required by your state.
Statutory employees are independent contractors you treat as regular employees for tax purposes. This status only applies to specific situations, such as drivers who earn commissions, some insurance salespeople, home-based workers, and some full-time traveling salespeople.
Employers are required to give a W-2 to each salaried employee by January 31st of the following year, and they have to send a copy to the IRS.
Related Tax Documents
As you file state and federal tax returns for your business or yourself, you may come across a few other forms.
These include:
- Form 1099 NEC — Form 1099 NEC reports any payments you made to independent contractors, freelancers, sole proprietors, and self-employed people. It used to be called the 1099 MISC. Likewise, if you’re a self-employed freelancer, you should receive a 1099 NEC form from any client that paid you more than $600 in the past year.
- Form W-3 — Employers have to submit one W-3 form each year along with each of their employee W-2s. The W-3 form totals all the values of each W-2 and gives a summary to the IRS.
- Form W-4 — Form W-4 tells you how much your employees would like you to withhold from their paycheck for tax purposes. Every new employee must submit a W-4 to employers, and employees can choose to update this whenever they choose. As of Jan. 1, 2020, all W-4 changes or forms from new hires must use the newly revised version, which eliminates the need to claim allowances.
- Form 1040 — Also known as the U.S. Individual Tax Return form. This is the actual form employees use to file their taxes with the IRS. It’s completed by using the information found on the W-2 form.
Where To Find Your W-2 Form
As part of year-end tax preparation, employers must prepare a W-2 form for each employee that earned more than $600. The deadline to distribute W-2 forms to each employee is Jan. 31 of the following year.
As an employer, you can deliver paper or electronic copies. Some states require employers to deliver paper forms regardless of electronic availability. Check with your state’s website to see if that applies to your business.
If you use online payroll processing, you can automatically send electronic W-2 forms to all of your employees. For more information about affordable payroll software that gives you everything you need for tax season, explore Hourly today.
Otherwise, employers that use manual payroll processing can file online with the Social Security Administration (SSA) website or download copies. Most office supply stores also sell W-2 and 1099 forms.
As for employees, you may receive your W-2 online or in the mail. If your employer uses payroll software, you can log into your account to view your digital W-2 form once it’s been filed. Paper copies are distributed through the mail.
If you lose the paper copy of your W-2, you should contact your HR department or the person in charge of payroll to request a new copy before April 15.
Lost W-2 forms can end up causing headaches for payroll departments each year. If you’re an employer, consider using payroll software that allows employees to log in and view their tax documents.
How To File a W-2
When you file your personal income tax return–with Form 1040–you’ll use the information from your W-2 to complete it.
Taxpayers with multiple jobs should receive a W-2 from each employer. You may also receive multiple W-2 forms if you changed employers during the past year. When filing with multiple W-2s, you’ll input information from each W-2 separately.
If you file your taxes using online software, you can import W-2 information from payroll software, upload a PDF, or manually enter the data.
You only need to send paper copies of your W-2 if you’re filing your taxes through the mail.
How To Read Your W-2
All W-2 forms contain the same information, no matter which employer they come from.
The information is divided into two sections, one for federal tax withholdings and the other for the state. The rest of the form contains information about your employer and income.
Here’s an overview of the information you’ll find on your W-2.
Boxes A through F
These lettered boxes at the top of the form provide tax identification information for you and your employer, like name, social security number, employer identification number, and address.
Box 1: Total Income
Your total taxable income for the year, which includes wages, salary, bonuses, and tips.
Box 2: Federal Income Tax Withholdings
The total amount of money withheld from your paychecks for federal taxes.
Boxes 3 and 4: Social Security Taxes
Box 3 outlines how much of your total income is subject to social security taxes, and box 4 reports how much of your total income was withheld to pay for social security taxes. This number may be different from boxes 1 or 5 since there is an annual limit on taxable income for social security.
Boxes 5 and 6: Medicare Taxes
Similar to 3 and 4, box 5 outlines how much of your income is subject to Medicare taxes, and box 6 states how much of your income was withheld to pay for Medicare taxes.
Boxes 7 and 8: Earnings from Tips
If part of your income is earned through tips, box 7 shows how much earnings from tips you reported, and box 8 shows how much earnings from tips your employer reported for you. These boxes will be empty if they don’t apply to you.
Box 9
This box is left empty. It was used for a tax perk that has been eliminated.
Box 10: Dependent Care Benefits
Reports how much you received from your employer for dependent benefits. This box will be empty if it doesn’t apply to you.
Box 11: Nonqualified Plans
Reports how much you received from your employer in the form of deferred compensation in a nonqualified plan, which is the formal way of describing specialized retirement plans or bonus packages used by high-level executives. It will be left blank if it doesn’t apply to you.
Box 12: Deferred Compensation
Includes the total amount of deferred compensation, such as 401(k) contributions or stock options. Each amount will have a corresponding code, which you can look up in the W-2 instructions. For example, “AA” refers to Roth contributions under a 401(k) plan. When filing, enter the amount, not the codes.
Boxes 13 and 14: Third-Party Sick Pay
Box 13 is only used if you received pay not subject to federal tax withholdings, such as sick pay from a third-party insurance provider. Box 14 is a catch-all field that reports amounts paid to third parties such as union dues or your state disability provider. It’s also where employers must report the total cost of medical insurance, coded as DD.
Boxes 15-20: State Income Tax and Local Income Tax
Boxes 15-20 detail your state and local taxes, including how much of your income was subject to taxes and how much of your paychecks was withheld.
What to Do if the Information on Your W-2 is Incorrect
If you have verified that your W-2 form contains errors, you should take steps to correct it before the tax deadline arrives. You can begin by contacting your employer or HR manager to notify them and request a corrected form.
However, if there are major discrepancies or you believe your employer is failing to withhold your IRS taxes (or withholding incorrect amounts), you should contact the IRS at 1-800-829-1040. The IRS will instruct your employer to send the corrected form.
In this case, the IRS may also advise that you file your taxes using Form 4852, which references your pay stub information instead of your W-2 form.
The W-2 Form: Putting It All Together
The W-2 is one of the most common tax documents since almost all employees use it.
Businesses and employees make estimated tax payments throughout the calendar year. During tax filing season, the IRS determines if you underpaid or overpaid on your taxes and adjusts as needed.
The good news is that using online software to run your payroll can also simplify tax time for you by automatically distributing W-2s and letting employees view their W-2s online.
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