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What Is a W-2?

By Anna Davies · February 13, 2024 · 10 minute read

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What Is a W-2?

A W-2 can be a vital component to your tax return every April. But what exactly is a W-2? It’s a form filed by an employer that shows compensation paid and amounts withheld from an employee’s paycheck. Compensation includes wages, tips, and other forms of money paid. Withholding can include taxes and other amounts deducted from an employee’s pay. If you have more than one employer, you may receive multiple W-2 forms. These forms are essential documents in filing your taxes for the previous year.

Knowing how to read your W-2 can be helpful in understanding your overall tax liability. Here, you’ll learn more about these documents, including:

•   What are the parts of a W-2?

•   Who receives a W-2?

•   When should your W-2 arrive?

•   What’s the connection between a W-2 and a W-4?

Parts of a W-2

All W-2 forms require the same information, regardless of the employer and employee. This information includes key employer information, such as business address and employer identification number (EIN). It also includes the employee’s information, such as social security number and mailing address. It’s a good idea to assess the form for any errors; if you see an error, contact your employer for a corrected form.

The W-2 has boxes that display various information. On the left side of the form, you’ll see the following:

•   Box A displays the employee’s Social Security number.

•   Box B shows the employer’s identification number, or EIN.

•   Box C contains the employer’s name, address and zip code.

•   Box D is a control number (something some employers use).

•   Box E is the employee’s name.

•   Box F is the employee’s address.

To the right and below the information above, you’ll see these areas:

•   Box 1 reflects earnings: wages, tips and other compensation.

•   Box 2 is federal income tax withheld.

•   Box 3 shows Social Security tax-eligible wages.

•   Box 4 contains Social Security withheld.

•   Box 5 is Medicare tax-eligible wages and tips.

•   Box 6 shows Medicare tax withheld.

•   Box 7 is Social Security tips (meaning discretionary earnings, such as tips, that are subject to Social Security taxation).

•   Box 8 is allocated tips (tips your employer assigned to you beyond those you have reported).

•   Box 9 is blank, a remnant of its previous use for any advance of the Earned Income Credit, which ended in 2010.

•   Box 10 reflects dependent care benefits.

•   Box 11 contains nonqualified plans, meaning money put in a tax-deferred retirement plan sponsored by your employer, which can reduce your taxable income.

•   Boxes 12 may be blank or may be filled in with codes A through HH, which identify miscellaneous forms of income that need to be reported to the IRS.

•   Box 13 shows statutory employee, retirement plans, and third-party sick pay. These will be checked off if you are a statutory employee, meaning an individual contractor who is treated like an employee; if you participate in a qualifying retirement plan; and/or if payments were made by a third party (such as an insurance plan) for disability pay or the like.

•   Box 14 reflects other deductions.

•   Box 15 shows the state and the employer’s state ID.

•   Box 16 contains state wages.

•   Box 17 shows state income tax, if withheld.

•   Box 18 reflects local tax-eligible wages, tips, etc.

•   Box 19 shows any local taxes withheld.

•   Box 20 contains the name of the locality.

Employees receive multiple copies of the same W-2 from each employer, to be filed with a federal tax return, a state tax return, and to be kept for the employee’s records. The IRS recommends keeping copies of W-2s for anywhere from three to seven years, depending on your situation.

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Who Receives a W-2?

Now that you know what a W-2 tax form is, you may wonder, who gets one? If you are an employee of a business, you should receive a W-2. If, however, you are a freelancer (aka an independent contractor), you should receive a Form 1099, showing freelance income subject to self-employment taxation, and not a W-2.

Recommended: How Do I Know What Tax Bracket I Am In?

When to Expect a W-2

The IRS requires employers to send out W-2s by January 31st for the prior tax year. This allows employees to prepare for tax season and get their returns in by mid-April. It might take a few days for the mail service to deliver it to you.

The Connection Between a W-2 and a W-4

The forms W-2 and W-4 may sound alike, but they work quite differently. You’ve just learned the answer to “What is a W-2 tax form?” Now, here’s what a W-4 is.

A new employee will be asked by their employer to fill out a W-4 form, which is used to assess how much tax to withhold from the employee’s wages. Withholding depends on the employee’s circumstances, including whether they have dependents and what their tax-filing status is, among other things. Employees who do not fill out a W-4 will be taxed as if they were single.

Employees won’t be asked to complete a W-4 form again unless they switch employers. But you should take the initiative to update your W-4 if your tax circumstances change, such as you get married, have a child, get divorced, or receive taxable income not subject to withholding, such as earning money from a contract or freelance job.

Each allowance an employee claims on their W-4 will minimize withholding throughout the year. An employee can also request additional amounts be withheld from their paycheck. When taxes are filed, the goal for employees is to avoid a tax bill or a large refund, both of which can indicate that your tax payments during the year were off the mark.

While “tax time” is in April each year, taxes are essentially pay-as-you-go, according to the IRS. That means that, in an ideal world, April shouldn’t bring a large tax bill or a large refund. Worth noting:

•   For a single person who has only one employer, filling out a W-4 should be relatively straightforward.

•   Those with multiple income streams, including rental income, investment income, or income from side gigs, may need to take some time and thought when completing their W-4 to ensure they’re withholding an appropriate amount, as well as paying quarterly estimated taxes, if necessary.

How do you know that your W-4 is accurate? You can assess that based on the refund or bill you receive at tax time. While a refund can feel like a windfall — and people often earmark it to pay off bills or fund a vacation, home improvement project, or other big-ticket purchase — the money represents an overpayment to the IRS.

While getting a big check can be exciting, it may make more sense to have that money available for budgeting purposes throughout the year. Or you could be putting it into a high-yield savings account. Similarly, a large tax bill can throw your budget off track and may subject you to penalties from the IRS for not having enough taxes withheld from your paycheck or not paying quarterly taxes.

Recommended: What Are the Different Kinds of Taxes?

Are You an Employer?

If you pay someone wages of $600 or more in a calendar year, even if that person is a relative, you’re technically an employer in the eyes of the IRS. This means that a person who employs a regular babysitter or housecleaner may need to withhold and pay certain taxes, including Medicare, federal unemployment, and social security.

This is an example of paying someone “on the books” and can be protection against fines and penalties that may come from paying an employee “under the table” or “off the books.” Having a clear understanding of what forms need to be filled out and what steps you need to take as an employer can help avoid a potentially complicated tax situation down the line.

It’s also important to issue W-2s in a timely manner. This helps your employees avoid the stress and potential penalties which can happen if you miss a tax deadline.

Having Your Paperwork in Order

Because things can change from year to year, it can be a good idea for an employee to regularly check their withholding on their W-4 annually. Another wise move is to make sure a new one is filed if there is a life change (as mentioned above), such as having a baby or getting married.

Workers should also keep an eye out for tax-related paperwork, since taxes are due regardless of whether paperwork has made its way to an employee’s mailbox. Missing tax forms can throw a wrench in the most organized person’s plans.

Checking in with an HR department can help make sure nothing falls through the cracks. Having paperwork ready and available can make filing taxes as seamless as possible when the time comes. This may also help you maximize your time if you work with a tax prep professional.

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Tips for Filling Out a W-2

If you’re an employee, you don’t need to do anything to your W-2 beyond checking that the information on it is correct.

If, however, you are an employer, you may fill the form out W-2s yourself, via a tax preparer, or by using payroll software to automate this task. You will be responsible for adding your company’s details properly, as well as information specific to each employee. For instance, when reporting an employee’s compensation, you would include only the amount that is subject to federal taxation. You would not include things like contributions to a pre-tax retirement plan, health-insurance costs, or similar benefits.

The Takeaway

While tax time may be met with eye-rolling and stress, it can also be a moment to set up financial intentions and systems for the year. This can include submitting a new W-4 to your employer, estimating quarterly taxes, and developing a strategy to ensure that your money works for you in the year ahead. Keeping on top of your finances throughout the year can make tax time more manageable, as can visiting the SoFi Tax Center for more tips.

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FAQ

What happens if the W-2 that I received is wrong?

If you believe your W-2 is incorrect, contact your employer to discuss. They may be able to explain why you sense a discrepancy and, if necessary, reissue the document. If you cannot resolve things quickly and satisfactorily with your employer and believe there’s false information circulating, you may want to reach out directly to the IRS, which can be contacted at its toll-free number, 800-829-1040, or at Taxpayer Assistance Centers.

How much money do I need to make in order to get a W-2?

If you are an employee who earned $600 or more in a given year, you should receive a W-2, which is usually sent out by January 31st of the following year.

What is the difference between a 1099 and a W-2?

A W-2 is a form that shares information about an employee’s earnings and withholding. A 1099-NEC is a form that independent contractors may receive. Workers who get 1099 forms are responsible for paying their own employment taxes, unlike W-2 employees.

What should I do if I have not received my W-2 yet?

January 31st is the day by which W-2s must be sent out for the previous tax year. If you haven’t received yours by that date and the form was mailed, you may want to give it another couple of days to allow for it to arrive. Other steps to deal with this situation include checking online to see if you have a downloadable version and contacting your employer to see what the status is. If it’s late February and you still don’t have it, it can be wise to contact the IRS directly for guidance. You might be able to use an IRS Form 4852 as a substitute for a W-2, for example.


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