What is a W-2?
Simply put, a W-2 is a tax form your employer sends you, known as a Wage and Tax Statement. Sounds simple, then why are there so many boxes and codes? Familiarizing yourself with the most important parts of this form can help you understand the income you made, taxes you paid, and prepare you for filing your tax return.
W-2, wages and withholding
Most taxpayers are considered employees and will receive a W-2 from their employer(s) by February 2, 2015. In addition to the wages, salaries and tips you made, the W-2 reports the amount of federal, state, and other taxes withheld from your paycheck. If you are not considered an employee, then your income will be reported on a different form. Independent contractors typically receive a 1099-MISC.
Why is your tax withholding important?
Your employer withholds money from your paycheck for federal income taxes. When you prepare your tax return, you compare the amount withheld to the amount of tax you owe. If too much was withheld, you get a tax refund. If too little was withheld, you owe additional taxes.
What are all those boxes and codes on the W-2 Form?
This is the best part of using TaxAct - they deal with all of this for you. Our easy to use software helps you enter this data in the right place and we do all the calculations for you. If you're the curious type, here's what the most frequently used boxes mean.
- Box 1:Wages, tips, and other compensation. This is the amount of your total taxable wages or salary being reported to the IRS for federal income tax purposes. This amount includes any wages, salary, tips you reported, bonuses, and other taxable compensation.
- Box 2:Federal income tax withheld. This is the total amount of Federal Income Tax withholdings from your paychecks. This represents the amount of federal taxes your employer has withdrawn throughout the year.
- Box 3:Social Security wages. Box 3 reports the total amount of wages subject to the Social Security tax.
- Box 4:Social Security tax withheld. This box reports the entire amount of Social Security taxes withheld from your paychecks. Usually, the Social Security tax2 is a flat tax rate of 6.2% on your wage income, up to a maximum wage base of $117,700 (for tax year 2014).
- Box 5:Medicare wages and tips. Box 5 is the amount of wages subject to the Medicare tax. Medicare wages includes any deferred compensation, 401(k) contributions, or other fringe benefits that are excluded from the federal income tax.
- Box 6:Medicare tax withheld. This is the amount of tax withheld from your paycheck for the Medicare tax. The Medicare tax is a based on a 1.45% flat tax rate of your total Medicare wages.
- Box 12:Deferred Compensation and Other Compensation. Box 12 will have a single or double letter code followed by a dollar amount. It can report many types of income, such as a 401(k) plan, 403(b) plan, or a Health Savings Plan (HSA). Often box 12 is for your information only. Here's a detailed list of box 12 codes.
There are several other boxes on your W-2 that may have information in them, but boxes 1 - 6 are the most common. If you have data in those other boxes, enter them into Common Form and we'll deal with them appropriately.
Attaching your W-2
When you finish your tax return and get ready to file it, remember that a copy of your W-2 must be attached. If you e-file using tax software then your W-2 information is sent along with your tax return. However, if you are filing by mail then you need to include a copy of your W-2 in the envelope.
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