Understanding the W-2 form
Posted on April 19th, 2016
By Brittany Llorente
Media Marketing Associate
A few weeks ago, when I was getting ready to file my taxes, I looked over my husband’s W-2 form and started entering in the numbers. Starting at box one and going down through the list, entering in the required information.
I then got to a box that made me pause. Box 12 DD. I looked up and asked him why the number in that box happened to be so high and he said, “What is that?”
Sometimes when you work for a payroll company, you pick up on little things. After reading articles on W-2 forms, reading what the boxes mean, and how they’re populated, it never occurred to me how much I know now about the tax forms that I file annually, and how little I did before.
For most people it is the thing you wait for in the mail so you can get your tax refund. It is so much more than that, as it is a look back on your wages, benefits, and more, through the year.
Here is a breakdown of what the boxes mean. (Via irs.gov website)
Box a—Employee’s social security number.
Box b—Employer identification number (EIN).
Box c—Employer’s name, address, and ZIP code.
Box d—Control number. This is generally a box used by the employer to number the amount of w-2s. This box is not often used or it is generated by the payroll software an employer may use.
Boxes e and f—Employee’s name and address.
Box 1—Wages, tips, other compensation. This shows the total taxable wages, tips, and other compensation that an employer paid their employee during the year.
Box 2—Federal income tax withheld. This shows the total federal income tax withheld from an employee’s wages for the year.
Box 3—Social security wages. Shows the total wages paid (before payroll deductions).
Box 4—Social security tax withheld. This shows the total employee social security tax (not the employer’s share) withheld, including social security tax on tips.
Box 5—Medicare wages and tips. The wages and tips subject to Medicare tax are the same as those subject to social security tax (boxes 3 and 7) except that there is no wage base limit for Medicare tax.
Box 6—Medicare tax withheld. This is the total employee Medicare tax (including any Additional Medicare Tax) withheld. This does not include the employer’s share.
Box 7—Social security tips. This shows the tips that the employee reported to the employer even if the employer did not have enough employee funds to collect the social security tax for the tips.
Box 8—Allocated tips. If the employer operates a large food or beverage establishment, this box shows the tips allocated to the employee.
Box 9 – Empty box
Box 10—Dependent care benefits – This shows the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by an employer for their employee.
Box 11—Nonqualified plans. The purpose of box 11 is for the Social Security Administration to determine if any part of the amount reported in box 1 or boxes 3 and/or 5 was earned in a prior year.
Box 12 – Codes.
Box 12 is its own beast with a lot of reason codes. The IRS even created a reference guide to help those understand what each code means.
Box 13—Checkboxes. The boxes that are checked are the ones apply.
- Statutory employee. This box is checked for statutory employees whose earnings are subject to social security and Medicare taxes but not subject to federal income tax withholding.
- Retirement plan. This box is checked if the employee was an “active participant” (for any part of the year) in any of the following.
- A qualified pension, profit-sharing, or stock-bonus plan described in section 401(a) (including a 401(k) plan).
- An annuity plan described in section 403(a).
- An annuity contract or custodial account described in section 403(b).
- A simplified employee pension (SEP) plan described in section 408(k).
- A SIMPLE retirement account described in section 408(p).
- A trust described in section 501(c)(18).
- A plan for federal, state, or local government employees or by an agency or instrumentality thereof (other than a section 457(b) plan)
- Third-party sick pay. This box is checked only if the employer is a third-party sick pay payer filing a Form W-2 for an insured’s employee or are an employer reporting sick pay payments made by a third party
Box 14—Other. If an employer included 100% of a vehicle’s annual lease value in the employee’s income, it also must be reported here or on a separate statement to the employee. An employer also may use this box for any other information that the employer wants to give to their employee. Each item will be labeled.
Boxes 15 through 20—State and local income tax information.
Lots of boxes, but a lot of information. If you’re an employee, make sure the numbers match your records.
How long should you hold on to your W-2 form?
A Forbes article stated that “As a rule, keep your tax records and supporting documentation until the statute of limitations runs for filing returns or filing for a refund. For most taxpayers, that means that you’ll want to keep those records for three years following the date of filing or the due date of your tax return, whichever is later.”
So, if you’re reading this, you’re likely a payroll professional and wondering why we’re writing a blog on something that you probably know inside and out. Well, this is a reminder to educate those people who receive those forms and let them know that this is more than the form that gets them their refund.
Educating employees (or simply sharing this blog with them) might make them appreciate the form a little more and understand the meticulous calculations and entries that payroll departments do on a daily basis. It also might keep you from having to re-print any forms.