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What is a W-2 Form?

definition

A W-2 form is a tax form that documents how much an employee earned, and how much he or she paid in taxes, in a calendar year.

🤔 Understanding a W-2 form

Employers are required to provide W-2 forms, also known as “Wage and Tax Statements,” to each of their employees and to the Internal Revenue Service every January. This form reports how much an employee made in wages or tips, and paid in taxes, in the previous calendar year. Anyone who gets a paycheck from an employer and has taxes deducted should receive one of these forms. Individuals use this document to file annual tax returns, and the government uses it to ensure people pay the correct amount in income taxes. Freelancers and contractors do not get a W-2 from their clients (they get a 1099 form, instead).

example

Let’s say Jill starts a new job in 2019. Jill earns an annual salary, and her employer takes money out of her check for taxes every month. In January 2020, Jill gets a W-2 form in the mail from her employer. The document lists her personal information, her total wages, and how much she has paid in state and federal taxes. Jill will use her W-2 to file her annual tax return by the deadline in mid-April.

Takeaway

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

Instead of recording the memories of last year’s family vacations, it documents all the money you made and all the money you paid in taxes that year.

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Tell me more...

What is a W-2 form?
How do you read a W-2 form?
How do you fill out a W-2 form?
How do you get your W-2?
What is the difference between a W-2, a W-9, and a W-4?
What’s the difference between a W-2 form and a 1099 form?

What is a W-2 form?

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

How do you read a W-2 form?

Every W-2 form is the same, so once you figure out how the document works, it’s pretty simple. 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 in 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

How do you fill out a W-2 form?

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.

How do you get your W-2?

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 paystub can help).

Once you get 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 should still file by the deadline and use Form 4852 as a substitute. If you get your W-2 down the line, 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 $3.3M for large companies (those that gross more than $5M), or $1.1M for small businesses. Those who intentionally disregard the rules might be on the hook for even more.

What is the difference between a W-2, a W-9, and a W-4?

There are many different tax forms, and it can be challenging to keep them straight. Let’s break down the difference between the W-2 form and two other common tax forms you’ve probably come across: the W-4 and the W-9.

W-4 Form

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, called 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, which can include being a head of household, caring for dependents, and more (a worksheet attached to the form can help you figure this out). 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.

W-9 Form

Like the W-4, the W-9 is another input form. However, it’s used by freelancers and independent contractors, not 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, you don’t need to provide information about allowances.

What’s the difference between a W-2 form and a 1099 form?

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. The IRS wants to be paid as you’re earning. Just as employees have money taken out of each paycheck for income taxes, independent contractors have to pay federal and often state income taxes throughout the year, usually quarterly. Those that do not may have to pay penalties.

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