The most common tax form U.S. employees receive is a W2 form. These forms are sent to employees each year in January so they can file their taxes with the correct documentation. Let’s take a closer look at how to break down the W2 form so the employer and employee will always know what to expect.
What is a W2 Form?
A W-2 tax form is a pretty simple document to navigate. It tracks the wages you earned in the previous year and how much you were taxed on. You’ll find your personal information, such as your name, address and social security number, and your employer’s office location.
Always check that your social security number and address are displayed correctly on the document. Any errors will require the IRS to do more research which will mean a slower process for you.
W2 Form Numbered Boxes
The remainder of the W-2 tax form aims to identify your income for the previous year and how much money was withheld for federal income tax, social security tax, Medicare tax and local and state taxes.
- Box 1: This reports your total taxable salary or other wages. This number includes your wages, salary, bonuses, tips and other taxable compensation.
- Box 2: Reports the total amount of money withheld from your paychecks for federal income taxes.
- Box 3: Reports the total amount of wages subject to the Social Security tax for the year. This is different from income tax because there is a maximum amount of $127,200 that can be taxed each year as of 2017.
- Box 4: Reports the total amount of Social Security taxes withheld from your paychecks. There is a maximum amount because of the cap.
- Box 5: Reports the amount of wages subject to the Medicare tax. This is the amount of income that can be taxed for Medicare, and there is no cap on this.
- Box 6: Reports the amount of Medicare tax withheld.
- Box 7: Reports the total amount of Social Security tips.
Generally speaking, most people will only use the above five boxes, and also boxes 16-20. The other boxes are there for people who received other types of income throughout the business year such as retirement funds.
- Box 12a to 12d: These boxes have letter codes so that you know which one applies to you. For example, if 12d is filled in, that means money was contributed to your retirement account.
- Box 13: This is a check box to let the government know you contribute to a retirement account.
- Box 14: This is an “other” box that may be used to report additional tax information. If any amounts are reported, a brief description of what the amounts are for will be added.
- Box 15: Reports your employer’s state and state tax ID number.
- Box 16: Reports the amount of wages subject to income taxes. This can be different than where you live.
- Box 17: Reports the total amount that you paid in income tax to the state where your job is located.
- Box 18: Reports the amount of wages subject to local income taxes.
- Box 19: This is the total amount that was taken out of your wages for local tax purposes.
- Box 20: This box provides a description of the local tax being paid.
W2 Box 12 Codes
- Code A: Uncollected Social Security or Railroad Retirement Tax Act (RRTA) tax on tips. Include this tax on the Form 1040.
- Code B: Uncollected Medicare tax on tips. Include this tax on the Form 1040.
- Code C: Taxable cost of group-term life insurance over $50,000.
- Code D: This lets you know that you’re contributing to a 401(k) plan. This is for your information only.
- Code E: This lets you know that you’re contributing to a 403(b) retirement plan.
- Code G: Employer contribution to a 457(b) retirement plan.
- Code L: Non-taxable reimbursements.
- Code M: Uncollected Social Security or RRTA tax on group-term life insurance over $50,000.
- Code N: Uncollected Medicare tax on group-term life insurance over $50,000.
- Code P: Non-taxable moving expense reimbursements.
- Code T: Employer paid adoption benefits. You must use the Form 8839 in order to calculate the taxable and non-taxable portion of these benefits.
- Code W: Employer and employee contributions to a Health Savings Account. You must report this amount on the Form 8889.
- Code Y: Salary deferrals under a section 409A nonqualified deferred compensation plan.
- Code Z: Income under section 409A non-qualified deferred compensation plan. This amount is included in taxable wages in Box 1. The amount is subject to an additional 20% tax plus interest as part of your total tax on Form 1040.
- Code AA: Designated Roth contributions under a section 401(k) plan.
- Code BB: After-tax contributions to a Roth 403(b) retirement plan.
- Code DD: Reports the cost of non-taxable health insurance provided through your employer.
- Code EE: Designated Roth contributions under a governmental Section 457(b) plan. The amount won’t apply to contributions under a tax-exempt organization Section 457(b) plan.
Because most of these boxes and codes won’t be used by the average employee, the W2 form is pretty straightforward. Refer to this article if you ever need clarification, as an employer or an employee, on what you’re looking at on a W2 form.