Your W-2: How to Understand This Important Tax Form
Throughout January, workers are getting W-2 tax forms from their employers. To help you decipher the often-obscure codes and numbers you’ll find on your form, below we’ve provided a box-by-box description of what you should expect to see on your W-2.
Boxes a-f: Personal and Business Information
Each W-2 includes information about your employer, including its name, address and tax identification number. It will also have your name, address, and Social Security number. It’s important to check this information to ensure accuracy. Because a copy of your W-2 goes to the Social Security Administration to establish your work history and eligibility for Social Security benefits, mistaken Social Security numbers can lead to lower monthly payments in retirement or even denial of benefits entirely.
Box 1: Wages, Tips, and Other Compensation
Box 1 includes the figure that you’ll include on your income tax form as taxable compensation. The number in Box 1 excludes benefits that aren’t subject to tax, such as amounts you have withheld to pay your share of health-insurance premiums or contributions to employer-sponsored retirement plans.
Box 2: Federal Income Tax Withheld
Box 2 shows how much money your employer took out of your paycheck to cover your income tax liability. You’ll include this on your tax return as well, and if it’s larger than what you owe in taxes, then you’ll get a refund for the difference.
Boxes 3 and 4: Social Security Wages and Tax Withheld
Boxes 3 and 4 show how much of your wages were subject to Social Security tax and how much tax your employer actually took out of your paycheck. This wage amount can differ from what’s in Box 1 because many items that are deductible for income-tax purposes aren’t exempt from Social Security tax. For instance, you still have to pay Social Security taxes on 401(k) and other employer-plan contributions. Also, if you earn more than the maximum amount on which Social Security charges payroll taxes — $117,000 for 2014 — then Box 3 will be capped at that amount.
Boxes 5 and 6: Medicare Wages and Tips and Tax Withheld
Similarly, Boxes 5 and 6 show the same calculations for Medicare taxation. The primary difference here is that there’s no upper limit on income subject to Medicare taxes, so the Box 5 figure will be higher than Box 3 for high-income earners.
Boxes 7 and 8: Social Security Tips and Allocated Tips
For those who work in jobs with substantial tip income, Box 7 will show what tips you reported to your employer. They’re already included in Box 1, so no additional work is necessary on your part. But if you have an entry in Box 8, your employer likely didn’t report enough tip income for you and other employees. As a result, you’ll have to add this amount to your taxable income in Box 1 and also file Form 4137 to report and pay additional payroll taxes on your tip income.
Box 9: Nothing to See Here
One oddity you’ll notice is that your W-2 skips over Box 9. This area was once used to reflect any advance payments of Earned Income Tax Credits your employer made to you. Under current law, though, employers no longer make such payments, and so many W-2s simply have a blank area of the form where Box 9 used to be.
Box 10: Dependent Care Benefits
Those who get financial assistance for caring for children or other dependents will have the amount received in Box 10. You’ll need this number to help calculate your Child and Dependent Care Tax Credit properly, as well as the amount you paid out of your own pocket for care.
Box 11: Non-qualified Plans
Some employees receive money from non-qualified deferred compensation plans, and for most employees, any amount here will already included in Box 1. But if your employer contributes to such a plan for services in prior years, it will be included here and in Boxes 3 and 5 but not necessarily in Box 1. Moreover, government employees who participate in Section 457 plans might have amounts here that won’t be included elsewhere on the W-2.
Box 12: Catchall Area
Your employer can put several items in Box 12. An explanation of each code is on the back of your W-2, and you can also find a list of codes on page 27 of these IRS instructions. Essentially, though, things you find here will give you information about the particular compensation or benefits you received, and in many cases, you’ll need these numbers elsewhere in your tax return to account properly for certain items.
Box 13: For Certain Workers
In Box 13, certain workers will have the boxes marked if they are statutory employees, participate in a company-sponsored retirement plan or receive sick pay from someone other than your employer. This information can determine eligibility for certain tax benefits, and it can also help the IRS identify individuals who would otherwise be treated as independent contractors.
Box 14: Other
This box is available for any other information an employer needs to give employees, such as union dues, payments for educational assistance, or taxes withheld for state disability insurance.
Boxes 15-20: State and Local Tax Information
Finally, Boxes 15 to 20 provide information that state and local tax authorities need to determine what you owe in state and local taxes. Income amounts will appear in Boxes 16 and 18, and any taxes you have withheld will appear in Boxes 17 and 19. You’ll want to use those figures in preparing your state or local returns.