The Form W-2 is one of the most critical documents when it comes to tax season. Your W-2, short for Wage and Tax Statement, lists out how much you individually have earned, as well as how much you have paid in taxes over the previous year. Employers are required to mail W-2s out to each of their employees annually.
You can expect to receive three copies of your Form W-2 from your employer or employers. Why three? Each copy has a unique purpose.
- Copy B – filed with your federal income tax return. This copy reports your federal income taxes.
- Copy 2 – filed with applicable taxing authorities. This copy reports your local, city or state income tax.
- Copy C – kept with your personal records. The rule of thumb is to hang onto Copy C for a minimum of four years after filing.
Having a clear understanding of how to read the Form W-2 can remove the extra stress of filing your taxes. The last thing you want to do is file incorrectly or fail to file and suffer the repercussions.
Understanding Boxes A through F
While not all W-2s look the same, they do all contain the same information. The lettered boxes, A through F, contain specific information about you, the taxpayer. You can find the following information in boxes A through F.
- Legal Name
- Social Security Number
- Employer’s Identification Number (EIN)
Understanding Boxes 1 through 20
Box 1 indicates your total taxable wages or salary. The total in Box 1 equals your annual wages or salary, reported tips, bonuses and any additional taxable compensation.
Box 2 indicates the dollar amount that was withheld for federal income taxes on your paychecks.
Box 3 indicates your total wages that are subject to Social Security tax. The Social Security tax is assessed based on an annual wage base which is updated each year. The maximum taxable earnings for 2019 is $132,900.
Box 4 indicates the annual dollar amount that was withheld for Social Security taxes.
Box 5 indicates the wages subject to the Medicare tax. The Medicare tax is not based on a maximum wage base.
Box 6 indicates the total amount of taxes that were withheld for the Medicare tax from your paychecks. The 2019 rate for the Medicare tax is 1.45%.
Box 7 indicates any reported tip income. If you did not report any tip income, this box will be left blank.
Box 8 reports any employer allocated tip income. The amount shown in this box is not included in the wages that are reported in boxes 1, 3, 5, or 7.
Note: It may be worth reaching out to a tax professional if tip income shows up in box 8 on your Form W-2.
Box 10 indicates the amount of dependent care benefits. Any amount over $5,000 should be reported as taxable wages on your Form W-2, and included in boxes 1, 3, and 5. Any amount under $5,000 is not taxable.
Box 11 reports any amount distributed to you from your employer’s non-qualified deferred compensation plan.
Box 12 can indicate a variety of different types of compensation and benefits. The IRS simplified box 12 by assigning either a single or double letter code that provides more information about the amount listed.
Box 13 may be checked for three different reasons.
- If you are a statutory employee.
- If you participated in your employer’s retirement plan.
- If you received third-party sick pay form your employer’s third-party insurance policy.
Box 14 may be used for your employer to report any additional tax information. A brief description should be included if any amount is indicated in box 14.
Boxes 15 through 20 contain important state tax information. Including your employer’s state identification number, your total taxable wages earned in that state, and wages that are subject to local, city or state income taxes.
Now that you have a clear understanding of your Form W-2, it’s time to file! The deadline to file your personal tax return this year is Wednesday, April 15, 2020. Be sure to file your taxes by the deadline to avoid fees and the failure-to-file penalty.
When Will I Receive My Tax Refund?
There are two ways you can file your tax return – electronically or via mail. E-filing has the fastest processing time. According to the IRS 90% of e-filed tax returns with direct deposit will be processed within 21 days. If you choose to mail your tax return, expect a six to eight week processing time.