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Helping Employees Understand Their Form W-2

We are in the thick of tax season, and your employees probably have plenty of questions about their form W-2, Wage and Tax Statement. Whether this is the first time they’re filing taxes on their own or are having their tax returns prepared by a professional, your workforce needs to understand how to read everything on their Form W-2s. Payroll Systems is here to help eliminate any confusion and answer any questions that may arise during tax season. Please share the below FAQs with your employees as a resource to the questions that you might receive.

The Basics for the Employee – What is Form W-2?

Below is an example of an unfilled W-2.

Simply put, Form W-2 reports on your taxable income for the year and is provided to you by your employer. In this form, you will see how much money you’ve earned from your job and the accumulated state and federal income tax that has been withheld from your paychecks throughout the year. Any Social Security or Medicare taxes that have been withheld are also reported on this form.

How do I read a W-2?

You’ll notice that not every Form W-2 looks the same. However, every Form W-2 should contain the same information. Using the sample above for reference, Boxes A-F contain information used to identify you as the employee and your employer. It includes sections for your name, address, social security number, your employer’s identification number, and your employer’s address. The numbered boxes include your financial information.

Why are the wages in each box different?

You might be concerned about seeing different wage values in each of the boxes on your W-2. Here is a box-by-box explanation:

Box 1: Income Tax Wages – Represents your total “taxable” income including wages, tips you reported, bonuses and other compensation. If you are enrolled in any Pension Plans like a 401k, 403b, IRA; Pre-Tax Plans like 125 Medical, Dental, Vision, FSAs, HSAs, Dependent Care; or Transit/Parking Plans with your employer and had deductions in pay because of these plans, your wage reported in Box 1 will reflect a reduced amount, since these plans are using pre-tax dollars.

Box 3: Social Security Wages – Represents your taxable income for Social Security purposes. The same deductions that reduced your wages in Box 1 apply to your Social Security Wages except for Pension Plan deductions. Your wage in this box may appear different than what is shown in box 1 because of this.

Box 5: Medicare Wages – Represents your taxable income for Medicare purposes. The same deductions that reduced your wages in Box 3 apply to your Medicare Wages.

Box 7: Social Security Tips – If you’ve reported any tip income to your employer, this will show up in Box 7. This value is separated from your Social Security Wages in Box 3, therefore not included in your Box 3 value. This amount is not separate from Box 1 or Box 5 and would be included in those values.

Box 12: Amounts – This box details such items as pension plan deductions, HSA contributions, taxable cost of Group Term Life Insurance, and possibly other items that affect your pay.

For a more in-depth explanation of each box on your W-2 including boxes not listed in this article, contact your employer for a special guide.

What do I do if there is a problem with my W-2 or I have not received it from my employer?

Federal law requires all employers to send W-2 statements to their employees no later than January 31. If you have not received your W-2 by mid-February, it is best practice to:

  • Contact your employer directly and ask when they were mailed out
  • Request for another copy
  • Contact the IRS if your employer refuses to give you your W-2

Should you find a mistake on your W-2 such as an incorrect social security number, misspelling of your name, incorrect address, or inaccurate wages, contact your employer to make the correction immediately.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.