What is a W-2 Form?

A W-2 form is kind of like a scrapbook...

Instead of recording family vacations from the last year though, a W-2 reports the money you earned and the money you paid in taxes during the last calendar year.

A W-2 reports how much an employee earned and paid taxes during the previous year. Employers are required by law to provide each of their employees with one of these forms. Employers also file a copy with the federal government. Employees must use the form to file their taxes. THis may result in either a tax bill or a tax refund.

Every W-2 form is laid out the same way. So, once you figure out how the document works, it’s pretty straightforward. The form is divided into a federal section and a state section (although some states don’t collect income tax).

Here’s a summary of what’s included on the form:

• Boxes a, e, and f: Employee’s Social Security number, name, and address
• Boxes b and c: Employer identification number, name, and address
• Box 1: Wages, tips, and other compensation the employee received
• Box 2: How much federal income tax has been withheld from the employee’s paychecks
• Box 3: How much of the employee’s pay was subject to Social Security tax
• Box 4: How much Social Security tax has been withheld
• Box 5: How much of the employee’s wages were subject to Medicare tax
• Box 6: How much Medicare tax has been withheld
• Box 7: How much of the employee’s tip income was subject to Social Security tax
• Box 8: How much in tips the employer allocated to the employee
• Box 10: Dependent care benefits the employee received under a dependent care assistance plan (DCAP), a benefit plan in which employers help workers pay for care for certain dependents
• Box 11: How much the employee received from a nonqualified plan, such as a deferred compensation plan that allows employees to defer income earned in one year to another year
• Box 12: The employer can provide more information here about the pay reported in Box 1 (such as contributions the employee made to a 401(k), an employer-sponsored retirement plan)
• Box 13: The employer checks a box to indicate whether the employee is a statutory employee (an independent contractor who is treated as an employee for tax purposes), whether he or she participated in a retirement plan like a 401(k) plan, and whether the employee received sick pay from a third-party insurance company
• Box 15: The state in which the employee pays taxes, as well as the employer’s state ID number
• Box 16: How much of the employee’s wages and tips were subject to state income tax
• Box 17: How much state income tax has been withheld
• Box 18: How much of the employee’s pay was subject to local taxes
• Box 19: How much local tax has been withheld
• Box 20: The name of the locality that taxes are being withheld for in Box 19

The good news is that if you’re an employee, you don’t need to fill out this form — Your employer does all the work. Of course, that means that if you’re an employer, this is on you.

The government makes things a little easier for employers by allowing them to prepare W-2s using a PDF form on the Social Security Administration’s website. This process saves time and helps ensure the forms are filled out correctly. You can also use a payroll service or tax preparation software to fill out and file W-2 forms for employees.

Your employer might mail you your W-2 form, or if you’re still working for the company, you might receive it in person. Employers can also provide W-2 forms electronically. You should always receive a W-2 form from an employer you’ve worked for in the previous calendar year, even if you no longer work there.

Employers have to send a W-2 form no later than January 31 for the previous year’s income (that’s the date by which they have to put it in the mail). If you haven’t received your form by early February, contact your employer to make sure it went out. The company may have sent your W-2 to the wrong address or failed to issue one. If you still aren’t able to get your form, contact the Internal Revenue Service. You’ll need to provide your personal information, your employer’s name and contact information, your dates of employment, and an estimate of how much you made and had withheld in taxes (looking at your final pay stub can help).

Once you receive your W-2 from your employer, you file it with your taxes and report that income. If you haven’t received your W-2 by tax time, you can still file by the deadline and use Form 4852 as a substitute. If you receive your W-2 later, you may need to file an amended return.

Employers who fail to provide W-2s on time may have to pay penalties. These can go as high as $3.3 million for large companies (those that gross more than $5 million), or $1.1 million for small businesses. Those who intentionally disregard the rules might be on the hook for even more.

Let’s break down the difference between the W-2 form and two other common tax forms: the W-4 and the W-9.

Think of the W-4 as the input form and the W-2 as the output form. When a new employer hires you, you’ll have to fill out a W-4, or the “Employee’s Withholding Allowance Certificate.” This is where you provide your name, address, Social Security number, and tax filing status. It’s also where you note the number of personal allowances you’re claiming. The more allowances you claim, the less money the government will take out of your paychecks for taxes. The W-4 also lets you opt to withhold extra money from your paychecks if you prefer.

When you receive a W-2 form, it summarizes your earnings and tax withholdings from the previous calendar year. It should reflect the instructions you gave on your W-4 regarding how much you wanted withheld for taxes.

Like the W-4, the W-9 is another input form. However, it’s used by freelancers and independent contractors, not full-time employees. You fill out the form when you start working with a new client, providing your name, address, and Social Security number or employer identification number (EIN). You also indicate the tax classification of your business (whether it is a sole proprietorship, LLC, S corporation, etc.). Since freelancers don’t have taxes withheld, they don’t need to provide information about allowances.

While employees receive a W-2 form from their employers, independent contractors do not. Instead, independent contractors and freelancers receive a 1099 form from clients. The 1099 form reports the amount that the company paid the independent contractor that year, and the contractor uses that form when filing taxes. Employers do not withhold taxes for independent contractors, so a 1099 won’t have information about taxes. The contractor will have to pay income taxes on the money he or she earned directly to the government.

It’s important to note that independent contractors generally can’t wait until mid-April to pay income taxes from the previous year. Just as employees have money taken out of each paycheck for income taxes, independent contractors should pay federal and often state income taxes throughout the year, usually quarterly. Those that do not may have to pay penalties.