Form W-2 is one of the most common tax documents used by the IRS for U.S. taxpayers, and one of the most important for both employers and employees. For your reference (and for any staff member who may inquire), here’s a quick rundown of what the form is and how it works:

What is Form W-2

The W-2 form is a document given to business employees, showing all taxable wages paid to the individual during the calendar year. It also includes information on tax and other withholdings. The IRS also receives a copy of each employee’s W-2.

When the employee files their taxes, they input the data from the W-2 onto their Form 1040. Employers must distribute all W-2s on or before Jan. 31 so that their employees have time to file their taxes before the April 15 deadline.

What Does Form W-2 include:

Information in Form W-2 includes the following, 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

From W-2 to 1040

Employees enter their W-2 data onto Form 1040 to determine if they still owe taxes or will receive a refund. NOTE: Taxpayers must report all earned income, including wages, salaries and tips, even if they are not included on the W2.

The W-2, box by box:

  • 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.

The W-2 form may be found on the IRS’s website.

Inhouse W-2 processing can be burdensome, even stressful given the tight window you have to distribute them. When you outsource your payroll to Accu Data, however, we handle the managing, distributing, and IRS filing for you!

Contact us today to learn more and to receive a free consultation on how to make your payroll processing more efficient and accurate!