Think of a W-2 form as an annual report card from your employer, only this one's for the IRS. In our upcoming lesson, we'll deep-dive into what this form is really about, why it's essential, and how to make sense of it.
What's a W-2 and why do I need It?
When you work for a company, they give you a paycheck. But before you get that paycheck, your employer takes out some money for things like federal income tax, social security taxes, and Medicare taxes. These are called "withholdings," and they are meant to help pay for the different taxes you owe throughout the year.
Your W-2 form helps you keep track of that money, and it's how the government knows how much you made and how much tax you've already paid. You should receive a W-2 form from every employer you worked for during that year.
The basics of a W-2 form
A W-2 form has sections (a through f) and boxes (numbered from 1 to 20). Some of these sections and boxes include your Social Security number, your employer's identification number, and both of your addresses. This way, the IRS, and you, can keep track of your taxable earnings and how much money was withheld for taxes. The form shows your wages, tips, and other compensation, as well as how much federal income tax, Social Security tax, and Medicare tax were withheld.
Let's break it down a bit more. We will be going over the W-2 form of Olivia Martinez, an employee of TechTonix. (You can see Olivia's completed W-2 here).
Sections a-f on your W-2 form show both your information and your employer's information. This helps the IRS know who you are, where you worked, and who was responsible for collecting the taxes. Make sure that all of your information on the form is correct before filing a tax return.
Boxes 1-20 on your W-2 form are all amounts that tell you how much money you made, taxes you paid, and other important stuff. These numbers help you and the IRS understand your taxes better and make sure everything is done right.
Making sense of the W-2
Let's dive in a bit deeper and explore more about the W-2 form boxes. We'll use the same example of Olivia Martinez who worked at TechTonix Innovations Inc. You can see Olivia's completed W-2 here. Your own W-2 should have the same layout, but the numbers would relate to your personal income.
Federal income tax withholding
- Box 1 (Wages, tips, and other compensation): This is the total amount of money Olivia was taxed on. It includes all her pay, bonuses, and tips, but does not represent her total pay.
of her income.
- Box 2 (Federal income tax withheld): This box tells us how much money was taken out of Olivia's pay and sent to the government for federal income taxes. Olivia had
Social security and Medicare taxes
Boxes 3-6 deal with what is called "FICA taxes". FICA taxes are Social Security and Medicare taxes, which are separate from income taxes.
- Box 3 (Social security wages): This box shows how much of Olivia's pay is taxed for Social Security. Olivia has
here because certain types of income, like 401(k) contributions, don't get federal income tax but do get Social Security tax taken out.
- Box 4 (Social security tax withheld): Here, Olivia's total Social Security tax withheld is listed, which amounts to
in our example.
- Box 5 (Medicare wages and tips): This box shows Olivia's wages and tips subject to Medicare tax. In our case, it's the same as her Social Security wages (
- Box 6 (Medicare tax withheld): Olivia's total Medicare tax withheld is shown here, amounting to
The rest of the boxes deal with more specific scenarios that can affect the taxes, such as retirement contributions or childcare expenses. Here is a brief overview of some of them:
- Box 7 (Social Security tips): This box lists tips Olivia told her employer about and have Social Security tax. In Olivia's example, this box is
because she didn't have any tips.
- Box 8 (Allocated tips): This box may show tips that the employer gives to their workers in some situations. In our example, the box is
because Olivia didn't get extra tips from her employer.
- Box 12a-d: These boxes are used to show extra information about Olivia's pay and work benefits. Olivia has a "D" with the amount of
, which means she put in her 401(k) retirement plan. She also has a "DD" with the value of to show how much her job's health insurance cost.
- Box 16-20 (State and local taxes): These boxes tell us if Olivia paid taxes to her state and city. In our example, Olivia made
that gets state tax (Box 16), and she paid in state income tax (Box 17).
What to do with your W-2 form
You'll use all of the information on your W-2 form to fill out your taxes and figure out if you paid just the right amount of tax or if you need to pay some more (or maybe even get a refund!).
Remember, each job you had during the year should give you a W-2 form. Make sure to keep track of them all and use them when it's time to file your taxes.
And that's it! Now you know a bit more about the W-2 form and why it's so important for filing your taxes. Make sure you take good care of it and use the information on it to help you file your taxes correctly.
*Depending on the employer's retirement plans, some contributions to retirement plans can be done before tax, and some after tax.
Want to join the conversation?
- So is the first box (1) showing the gross income? I'm still slightly confused.(2 votes)
- Gross income is the total amount paid to you BEFORE taxes and other required fees (like FICA and Medicare) are deducted.
So, If your job pays you $5 an hour and you work 40 hours a week, your gross pay is $200. But taxes, FICA and Medicare deductions are made. You may also pay certain amounts for required state disability insurance, city and state income taxes, and such. Let's say those take $25 per week from you. So, your GROSS income was $200, but your NET income was $175. At the end of the year, your W-2 form will report 52 weeks times $200, a gross income of $10,400.(3 votes)
- I understand most of this, but I'm not quite sure about a few things, firstly, where exactly are the Social Security and Medicare wages coming from? Secondly, in the video for this lesson, Khan was talking about how the Social Security wage included the 401K, however, 62,500 + 4,500 ≠ 64,000. Sorry about my confusion, I just really want to know.(1 vote)
- Box 12 is a miscellaneous box. Some employers use it, and some don't, but it essentially contains any information that the employer was recording and bookkeeping. In the specific case of $4,500 recorded in box D, it reflects contributions to a 401(k). However, some employers have multiple offerings for 401(k)s, some of which are before, and some after taxes are taken out, like a ROTH 401(k). The discrepancy may be from that. A portion of 401(k) contribution was taxed and other portion was not. But, your understanding is spot on - most commonly they add up to Social Security wage, but not all the time. Hope that helps.(2 votes)
- How do you figure out if you overpaid in taxes? I'm assuming you will have to find out the percentage of your money that was supposed to be taken away and do the math yourself.(1 vote)
- The W-2 form will show how much you earned, and how much of that was withheld for taxes. If you overpaid, then when you file your taxes, you will be eligible for a refund. Adjust your deductions and such so less will be withheld the next year.(1 vote)