What’s a W-2 Earnings Form and How to Read It?

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If you’re new to filling out tax forms, you may be concerned about how to read a W-2, with all its boxes, numbers, and codes. This article contains the details of how to read it with all W-2 boxes explained.

What Is a W-2 Earnings Statement?

A W-2 earnings statement is a crucial document for you to complete your taxes. Employers issue a form W-2 once a year, which is simply a snapshot of how much the employer has paid you for the year, how much tax was withheld from your paycheck, and other withholdings that can affect your tax obligation.

It’s essential to know that if you have other types of earnings/income—including self-employment income—you must report this to the IRS via another form, not on your W-2 form. (You should attach this form to your documents when filing your tax withholdings.)

NOTE: What is the W-2 form definition? The W-2 format is also called the wage and tax statement. There are a few copies of this document since it’s used to inform many parties. And if you work for two employers, you should obtain two different W-2 forms.

What Information Appears on a W-2 Form?

The W-2 form contains information on the employer’s business, including the employer’s EIN, business name, and address. It also entails the employee’s Social Security Number (SSN), earnings, withholdings, retirement plan, total benefits, and taxable wages.

NOTE: The information on your W-2 form may not be accurate. You should keep track of your income to see if you’ve overpaid or underpaid on your taxes, in which case you would receive a refund or need to pay more.

How to Read a W-2 Earnings Summary Form

The W-2 format is horizontally divided. There are boxes marked with letters on the left and right and boxes marked with numbers. The lettered boxes are self-explanatory and easy to read. They contain your employer’s information and yours.

You should, however, be cautious about the correctness of these boxes. The right side is where the dollars and codes are located, and many don’t know how to read them. But understanding a W2 is crucial for your taxes, especially if you wish to know how to do taxes yourself.

Boxes 1 to 15

They contain details that taxpayers care about the most:

Box 1: Wages, Tips, and Other Compensation

You must know how to read W-2 gross income. You can see your total taxable wages, prizes, tips, and taxable fringe benefits in this box. (This number should be no less than the sum in Boxes 2 and 3.)

Box 2: Federal Income Tax Withheld

The amount of withheld federal income taxes are listed in this section. This sum is annually withheld from your wages. You should, however, make an adjustment if the number is too high or low. (You could also consider inexpensive tax software to do your taxes.)

Box 3: Social Security Wages

This box details the total wages paid that are subject to Social Security taxes. Sometimes this number is higher than Box 1 because certain income may not be subject to income tax.

Box 4: Social Security Tax Withheld

This box shows the total of social security taxes withheld for the year. Social security taxes are calculated with a flat rate of 6.2, unlike federal income taxes. This means that the amount in Box 4 should equal the amount in Box 3, times 6.2%. (Knowing this information will help you know how to read the W-2.)

Box 5: Medicare Wages and Tips

This box contains the total wages and tips reported to your employer that are subject to Medicare taxes. Since there is no cap for Medicare taxes, the number might be larger than in Box 1 or 3, or even the biggest in the entire form.

Box 6: Medicare Tax Withheld

This box reports how much in taxes was withheld from your paycheck for Medicare taxes. And since there is no cap for this tax, you might find that the amount in Box 6 is greater than in Box 5, multiplied by 1.45%. (If you don’t know how to read W-2 forms, you could seek advice from an expert.)

Box 7: Social Security Tips

This figure shows any tip income you’ve reported to your employer. But if this box is empty, you either did not report any tips or receive tips. If you receive pre-tax benefits, this amount will be equal to the amount in Box 5. If you don’t have any pre-tax payments, Boxes 7 and 3 should add up to the balance of Box 1. The total of boxes 7 and 3 should not exceed the Social Security wage base.

Box 8: Allocated Tips

While reading a W2, you might notice that your tip incomes are taxable benefits. This box reports any tip income that was allocated to you by your employer. So, for example, if you work for large food and beverage establishment, and you get tips, those tips are totaled here.

Box 9: (Gray/Blank Box)

This box use is not apparent because it’s for employers who participate in the IRS`s piloted W-2 Verification Initiative. It will be blank if your employer is not participating. If your employer participates, you will have a verification code that your taxpayers and tax professionals should write down. The software prompts this code, which can speed the processing of the return and issuance of refunds.

Box 10: Dependent Care Benefits

This box shows the number of dependent care benefits you elected. For instance, if you deferred pretax money into a flexible spending arrangement to pay for dependent care costs, or if your employer-provided you money for medical expenses under a dependent care assistance program, that amount will be shown here.

Key Takeaways

Knowing about a W2 is essential because it is a snapshot of how much the employer has paid you for the year and how much tax withholdings were made, affecting your tax obligation.
The W-2 format is horizontally divided. There are boxes marked with letters on the left and right and boxes marked with numbers.
Box 1 shows your taxable income; Box 2 shows how much federal income tax your employer withheld from your pay; Box 3 shows how much of your earnings were subject to Social Security tax.
Box 4 is the amount of Social Security tax withheld; Box 5 is how much of your pay is subject to Medicare; Box 6 is how much withheld.
Box 7 shows how many tips you reported; Box 8 is how much the employer reported in tips; Box 9 shows a validation code; Box 10 is your received amount in dependent care benefits.

Box 11: Nonqualified Plan

This box shows any payments distributed to you from the employer’s non-qualified deferred compensation plan. The purpose of this box is for the SSA to determine if amounts in Boxes 1, 3, or 5 were earned in a prior year to confirm that the correct amount is paid.

Box 12: Codes

This box includes your nontaxable income (such as adoption benefit), nontaxable benefits (such as sick pay), or armed forces benefits. In addition, it’s simplified to code letters for your employer—you can ask your employer to determine which code means what or research it yourself.

Box 13: Statutory Employee Status, Third-party Sick Pay, Retirement Plan

There are three checkboxes inside Box 13, each showing your status. They are checked if:

  • First: Your earnings are subject to Social Security and Medicare taxes but not subject to federal income tax withholding.
  • Second: You were an active participant in a retirement plan in the past tax year.
  • Third: You received sick pay under a third-party insurance policy.

Box 14: Other

This box allows the employer to list additional tax information that doesn’t fit in any different areas in this form, such as nontaxable income, union dues, uniform payments, and health insurance premiums.

Boxes 15 to 20

They relate to local state taxes:

Box 15: Employer’s State ID Number

This box reports your employer’s state and state tax identification number.

Box 16: State Wages, Tips, etc.

This box contains the total taxable wages you had earned in your state. If you worked for the same employer in multiple states, there might be multiple lines of information in this box.

Box 17: State Income Tax

Box 17 reports state taxes and local income taxes. These are paycheck withholdings for the wages reporter in Box 16.

Box 18: Local Wages, Tips, etc.

Wages subject to local, regional, or other state income taxes are recorded in this box.

Box 19: Local Income Tax

The cumulative taxes deducted from your paychecks for local, city or other state income taxes are shown in Box 19. If you itemize your deductions on Schedule A, you can subtract this balance as part of your state and local income tax deduction.

Box 20: Locality Name

This box presents a brief description of the local, district, or other state tax collected. For example, the description could refer to a specific city or state fee, such as state disability insurance (SDI) payments.

How Many W2 Forms Per Person?

The answer depends on how many workplaces a person has and how many an individual has changed during one year. In most cases, you`ll only have one W-2 form if you’re working for one employer during the year. But if you work for multiple employers simultaneously, you may receive numerous W-2 forms for each employment place.

NOTE: If you are self-employed or have additional income, you shouldn`t expect a W-2 form.

How Many W-2 Copies Exist?

When searching for W-2 forms explained on the internet, you may be confused by the red copies and copies with different names in the left corner. Note (below) the six paper copies from the W-2 form.

  1. Copy A goes to the SSA.
  2. Copy B goes to the employee and is filed by the employee with federal income tax returns.
  3. Copy C goes to the employee for their record.
  4. Copy D goes to the employer for the employer’s records.
  5. Copy 1 is for the employer’s local or state income tax returns.
  6. Copy 2 is for the employee’s local or state income tax returns.
NOTE: If your W-2 form has an error, the other six copies of it are circulating. But you may contact your employer to reissue a new one.

Conclusion

Why are taxes complicated? Taxes can be perplexing because the wage base is adjusted yearly to adapt to inflation, so you must know how to read your W2. Knowing about a W-2 earnings summary is essential to ensure that the information filed to the IRS from your employer is correct. In addition, you can e-file your own taxes with confidence and avoid making serious tax mistakes.

FAQ

Does your W2 show what you get back?

Box 2 on your W-2 shows you the amount of tax withheld from your wages. But this doesn’t tell you how much you’ll get back.

When will my W-2 form arrive?

Your W-2 form should arrive in early January, after one year of your employment. So, for example, if you get a job this year, expect your W-2 the following year in January since your due date for filing taxes is April.

Which box on your W2 is your gross income?

The information about your gross income is in Box 1 of your form. This box is essential in filing your taxes. (This is why you should know how to read a W-2.)

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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