Understanding Your Form W-2, Wage and Tax Statement
By Connie P. Stancil, Principal, CPA
Many years ago, your Form W-2 was fairly simple. With the creation of cafeteria plans, retirement plans and the passing of new laws regarding W-2 reporting, the W-2 form has become a complex document.
Your Form W-2 is prepared by your employer and issued to you by January 31st of each year for the prior year. The employer prepares six copies of the form. Three are given to you to be used in the preparation of your income tax returns, one is sent to the Social Security Administration (which is available to the Internal Revenue Service), one is sent to the State and the last one is retained by your employer. The copies that are sent to the Social Security Administration and to the state will eventually be matched up to your income tax returns to be certain that you have reported your wages and withholding accurately and properly.
The first thing you should do when receiving your Form W-2 is to review your name, address and social security number to make sure everything is correct. If an error is found, you should contact your employer for a corrected document.
There are several boxes for wages on your W-2, and they could all be different amounts. Box 1 is the amount that is reported on your income tax returns as taxable wages. This amount may not be your actual salary amount, because it may have been reduced by cafeteria plan deductions or retirement plan deferrals. Box 3 is your social security wages, which may also have been reduced by cafeteria plan deductions, and is maximized in 2019 at $132,900. Box 5 is your Medicare wages, which may have also been reduced by your cafeteria plan deductions, but have no maximum amount at this time. There are additional boxes used if you work in the restaurant industry and receive tips.
Federal income tax, state income tax, social security and Medicare taxes withheld from your pay check are reported in the appropriate boxes on your W-2 and are used in preparation of your income tax returns.
Box 10 is used if your employer offers dependent care benefits as part of its cafeteria plan offered to employees.
Box 12 is the section of your W-2 that informs the employee and the government agencies about amounts affecting your payroll other than taxes, as well as information on certain benefits that have been provided to you by your employer. This would include retirement plan deductions, health savings account activity, cost of group term life insurance, and health insurance premiums paid on your behalf, just to name a few. The instructions on the back of your W-2 will give a description of each code used in Box 12.
There are items in Box 13 that will be checked if they apply to you. The most common one is the retirement plan box, which informs your tax return preparer that you are a participant in your employer plan and that you may be limited on additional retirement plan contributions for the year.
Box 14 is a miscellaneous box that can be used by your employer for any purpose. It is often used to report health insurance premiums paid by S corporations on behalf of its shareholders.
Because of how payroll items affect the taxable amounts on your W-2, if the form does not come with an attached analysis of your gross salary reconciled to what the wages are on your W-2, it would be helpful to provide your last pay stub of the year to your tax return preparer along with your W-2. This may eliminate questions the preparer may have when reporting your W-2 accurately on your income tax returns.
Are there other boxes used on your Form W-2 that I haven’t mentioned in this article? If so, please contact your tax advisor to discuss your W-2 in more detail.
Connie P. Stancil Principal, CPA
Connie is a principal in our firm and has worked in public accounting for over 35 years. She manages several clients in our CAS department. This includes payroll preparation, writeup work, financial statement preparation, and tax services for both businesses and individuals. Connie also focuses on our multi-state, government contracting clients for tax and […]