How Do I Read and Understand My W-2?

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As soon as January hits, many employees begin counting down the days until they receive their W-2.  It’s not the act of doing taxes that brings us joy, it’s the possibility of getting a big refund.  While some people simply hand their W-2 over to an accountant, you can save time and money by doing your own taxes with ezTaxReturn.com.  Either way, it’s always a good idea to have at least a basic understanding of the information listed on your W-2.

What is a W-2?

A W-2 is a tax form used to report employee wages and taxes withheld for the year.  You can expect to receive a W-2 if you earned at least $600 or had taxes deducted from any amount of income.  Don’t make the mistake of thinking this document is just for your own records.  If you meet the filing requirements, you’ll need to use the information to prepare a tax return.  Most employees will receive their W-2 by January 31^st as required by the IRS.  This gives you more than enough time to file by the April 18^th tax deadline.  However, if you don’t get yours by mid-February, we recommend contacting your employer.

When you have your W-2 handy, look it over to make sure the information is correct. This is important because it affects more than just your taxes. A copy of your W-2 is also sent to the SSA and used to determine future Social Security benefits. Any mistakes can cause you to receive lower payments when you retire.

Boxes a-f:  Your personal and employer information

Boxes a-f of your W-2 contains identifying information for both you and your employer.  Here you’ll find your name, address, tax ID number and similar details for your employer. If you work at a company with multiple locations, there’s a good chance that the employer address will be different than the location you’re used to. It’s not a big deal, it’s just their legal address. Additionally, your control number may be left blank. This number is only used by your employers payroll department and isn’t mandatory.

Box 1 – Wages, tips, other compensation

Box 1 represents your taxable income for the year.  This includes your wages, tips and other compensation.  Elective deferrals such as 401k and 403b contributions are excluded from this figure.

Box 2 – Federal income tax withheld

Every time you get paid, a portion of your check is used to pay federal taxes.  Box 2 shows the total amount that was withheld during the year.  Paying more than your fair share will result in you getting a refund when you file your tax return.  On the other hand, not paying enough means you’ll owe Uncle Sam.  This is why it’s important to complete and submit a new Form W-4 to your employer whenever your life changes.

Boxes 3 and 4:  Social security wages and taxes withheld

As if federal taxes weren’t enough, workers must also pay Social Security taxes throughout the year.  In Box 3, you’ll find the portion of your income that’s subject to Social Security taxes.  This amount may be larger than what appears in Box 1 because it’s calculated before any payroll deductions are made.  For income year 2022, the maximum social security wage base is $147,000.  Box 4 displays the total amount of Social Security taxes that were withheld.  To calculate this figure, your income was multiplied by a flat rate of 6.2%.  Since the maximum wage base is $147,000, your Box 4 amount cannot exceed $9,114 ($147,000 X 6.2%).

Boxes 5 and 6 – Medicare wages and tips and taxes withheld

Box 5 of your W-2 shows the portion of your income that’s subject to Medicare taxes.  Unlike with Social Security taxes, there isn’t a wage limit.  Don’t be alarmed if the figure in Box 5 is larger than what appears in Box 1.  Certain deductions that are excluded from regular taxes still face Medicare taxes.  This includes deferred compensation, retirement contributions and other fringe benefits.  Any money that was deducted for Medicare taxes is depicted in Box 6.  Typically, Medicare taxes are 1.45% of your Medicare income.  However, if you earn more than $200,000 a year, expect to pay an extra 0.9% for Additional Medicare Taxes.

Boxes 7 and 8 – Social security tips and allocated tips

Any tips you earn count towards your taxable income and must be reported on your tax return.  Box 7 reflects the amount of tip income you reported to your employer.  If you don’t earn any tips, this box will obviously be empty.  Box 8 reflects your allocated tips which is the amount assigned to you by your employer.  This is in addition to the amount reported in Box 7. 

Box 9

By now, you probably noticed that Box 9 is darker than the rest of the form.  That’s because this section no longer serves a purpose.  Once upon a time, it was used to reflect advanced payments of the Earned Income Tax Credit (EITC).

Box 10 – Dependent care benefits

Received dependent care benefits from your employer?  If so, the total amount you received will be reflected in Box 10 of your W-2.  Any amount over $5,000 will also be included in box 1.

Box 11 – Nonqualified plans

This section reports any distributions you received from a non-qualified plan or non-governmental section 457(b) plan.

Box 12 – Codes

Various types of compensation and benefits are reported in box 12. Typically, this box will contain a single or double letter code followed by a dollar amount.  You can easily find the explanation of each code by flipping to the back of your W-2.  A reference guide for box 12 codes can also be found on page 19 of the 2021 General Instructions for Forms W-2 and W-3.

Box 13:  Checkboxes

Depending on your situation, you may have three boxes checked off in this section.  The options include:

• Statutory employees – Workers whose income was subjected to Social Security and Medicare taxes but not federal taxes
• Retirement plan – Applies to those who were active participants in their company’s retirement plan
• Third-party sick pay – Relates to people who received sick pay from their employer’s third-party insurance provider

Box 14 – Other

Box 14 is used to report additional tax information such as union dues, tuition assistance, state disability insurance taxes withheld, etc.

Boxes 15 – 20 – State and local income tax information

If you don’t live in a tax-free state, boxes 15-20 are where you’ll find the information needed to complete your state return.  This includes your state wages, state income tax withheld, local wages, local income tax withheld and locality name.  ezTaxReturn.com is the fastest and easiest way to prepare your taxes. File your federal and state returns in 30 minutes or less.