Anatomy of a W-2
Ever wonder about all those numbers on your W-2 form? See a breakdown of one of the most important tax forms.
So let's talk a little bit about W-2 forms, which are super important forms when you are filling out your taxes. And to get a sense of what filling out your taxes are even about, let's just draw a little bit of a timeline. I'll draw it right here on the W-2 form.
So let's say that is year 1, so year 1, and then of course we go into year 2, year 2. And let's say you are working at ABC Employer for part of this year, so you are working for them, maybe full year, maybe part of the year. So the next year, you're going to have to fill out your taxes, and filling out your taxes aren't necessarily paying your taxes. You might have been paying your taxes all year.
Your employer with every paycheck would have probably been withholding some of your income for federal income tax, state income tax, Social Security taxes, Medicare taxes, and then when you fill out your taxes by the April 15th deadline – so this is the 4/15 deadline, you have to get your taxes done by that date – that's when you true it up. If you were paying too much based on your particular circumstances during the year, then you will get a refund. If you paid too little based on your particular circumstances, then you're going to have to pay, you're going to true it up by that date.
And to help you account for this, and to help you account for how much you got paid and how much of your income was withheld for these different reasons, your employer issues you a W-2 form. One W-2 form goes to you and then one W-2 form will go to the IRS, so just that it knows what happened in that year as well, and any employer you worked for in that year 1 needs to get you that W-2 form by January 31 of the next year so that you have it there to actually get your taxes done by April 15th, and if you have more than one employer, you should get one W-2 for each employer.
So now let's just look at what this form is telling us, so some of this might be a little self-explanatory. You have your Social Security number. This is how the IRS keeps track of you. You have your employer identification number. This is how the IRS keeps track of your employer. And then you have just the general information, the name and address of your employer, your name and address. And then you have all the information about, well, what were your taxable wages and tips and compensations, and then how much taxes were actually withheld.
So we see here in box 1, wages, tips, and other compensation, so this is your taxable wages, tips, and other compensation used to calculate your Federal income tax. So this is essentially the number that was kind of input to think about how much was withheld, and then this was the actual number that was withheld.
Then we go to box number three, Social Security wages, and you might say, "Well, why is this number different than that number?" Well, they are close, and the reason is Social Security wages may include some things or may not include some things that are included in your Federal taxable wages. So for example in this case, Any Employee actually gave $1,000 to their 401(k) program. That is on a pre-tax basis so they don't have to pay taxes on it from a Federal income tax point of view, but it is used to calculate your Social Security tax. So they added that back in, so instead of $39,000 it's $40,000 is what's used to calculate the Social Security tax, and that actual tax withheld is right over here, $2,480.
Similarly – I always have trouble saying that word – right over here we have your Medicare wages and tips, and you say, "Well, why do they just list it again? It looks like the same number." Well, sometimes it will be the same number but sometimes it won't be the same number. For example, Social Security caps out after a certain point and so that's actually another reason why there could be a reality where your wages and tips are up here and your other compensation might be higher than your Social Security wages, if you make a relatively high income; but Medicare wages and tips don't cap out, so these numbers actually might be different depending on the circumstance, but this is the number that was used to help to think about how much Medicare tax was withheld.
And once again the withholding, whether the – the withholding in general – especially when you’re talking about the federal income tax withholding – this is based on things you filled out in a W-4 form, which we’ll talk about in more detail in another detail. But it’s based primarily on are you single or married and how many dependents do you have.
Now as you go into these other boxes, you go into parts that might be empty, or they might be filled in depending on our particular circumstances, but they're not as consistently filled in as these top six boxes right over here. So box number 7, these are your Social Security tips. These are the tips that you reported to your employer that are susceptible to Social Security tax, and you might notice over here in box 3, they only say Social Security wages, not wages and tips like we have in box 5 and box 1, and so that is actually separated out right over there.
Box number 8, allocated tips, this is the IRS's way of keeping track that at least a reasonable amount of tip income is reported. This is tips allocated by an employer, and I won't go into it, it gets quite complicated, but it's a percentage of if they are a restaurant or a bar, a place where the people are likely to get tips, they allocate a percentage based on the revenue, a certain percentage of that, to employees, and you can almost view them as what was likely going to be the tips, and this actually can get into a fairly complicated discussion. The big takeaway of it is if you are getting tips, it's good to keep track of it yourself, and it's good to report it to your employer.
Now as we go into these other boxes, box number 9, I won't go once again into the details of it, but as of the time of this video was made – as you can tell, it was made in 2014, this box was no longer used and so that's why it's grayed out. And then as we go down, once again, these are many, many boxes that don't always get filled out. Dependent care benefits, these might be, well, they are what they say. If you got some type of benefit that helped with childcare or some type of schooling that would be listed over here. Nonqualified plans, these are things like deferred compensation plans, they often apply to kind of higher-level executives, but they're just there just to list them just so that they can be broken out.
Now this section over here, there's a bunch of different codes you can see, and I'm not going to go into each of those codes. Actually each of those codes could probably be their own video, and if I did them all together, there's a whole set of them. It's a listing of if you've made contributions to say things like a 401(k) plan, and in this example, the code D is actually talking about, hey, a $1,000 contribution was made to a 401(d) plan. We've already seen that's what accounts for the discrepancy between boxes 1 and 3 or between boxes 1 and 5, and obviously you can list multiple of these.
Now 13, these are just check boxes to see if certain things happened, if you were a statutory employee, once again, I'm not going to go into detail on that. That can get a little bit involved. Retirement plan, that clearly happened here. We just talked about that. Third-party sick pay, that's if maybe your employer had an insurance plan for sick pay, and so you received it from the insurer as opposed to from your employer.
Box 14, other, it is what it says. It's a space for your employer to kind of list other types of odds and ends that might have been relevant to you. And then after that, we start breaking into the state and local wages and taxes, so you see over here in box 15, you can list the state or states, you have to two right over here that you might have worked in in that year, even for this one employer. Maybe you moved for that same employer in that same year, and you can list the name of the state but also the state ID number, which is how the IRS keeps track of the states, and it's really just keeping the information to be a little bit redundant so in case there's a mistake, people can still keep track of things.
Then if you're in a state with state income taxes, well, you would be doing this if you were in a state with state income taxes, you would list your wages, tips, and compensation that are susceptible to state income taxes here, and then you would say, well, what was actually held. And then 18 and 19 and 20, if you are in a city that also collects income tax, a place like New York City and there's others, that's what you list over here, the wages that are susceptible to it and how much you paid, and the actual locality name.