With the deadline for W-2 distribution quickly approaching, payroll and HR teams will undoubtedly begin to receive numerous calls from employees who are trying to make sense of their tax forms. Many people don’t take the time to read or understand their W-2, and the form can be intimidating or confusing for some people who may not be familiar with the reported figures.
So, what’s on a W-2? Here is a box by box breakdown:
Boxes a, e, f: These are informational fields. Make sure the SSN, name and address fields are reported correctly.
Boxes b, c, d: These fields contain the employer’s information. Don’t be alarmed if box d is blank; this is an optional field that the employer may or may not utilize.
Box 1: Total wages, tips, and other compensation. Although it says “Total,” what it really displays is the total taxable earnings for the year. Many people get confused when they compare this box with their year-to-date gross earnings from their final pay stub of the year and the figures don’t match. This is okay – if there were any pre-tax deductions or non-taxable earnings, those amounts will not be excluded from box 1.
Box 2: This is the total amount of federal income tax that was withheld during the year, based on the elections made on the employee’s W-4.
Box 3: The total amount of earnings that were subject to the Social Security tax. Taxable wages are capped each year (for 2020, the number in this box should not exceed $137,700).
Box 4: The amount of Social Security tax that was withheld from your paychecks. The figure in box 3 multiplied by 6.2% should result in the amount reported in box 4.
Box 5: The total amount of earnings that were subject to Medicare tax. Unlike Social Security taxable earnings, there are no caps on Medicare taxable earnings, so higher wage earners may see higher amounts in box 5, compared to box 3.
Box 6: The amount of Medicare tax that was withheld from your paychecks. Similar to the Social Security tax, Medicare tax is based on a flat tax rate of 1.45%. However, individuals with earnings above $200,000 are assessed an additional 0.9%.
Box 7: For individuals who receive tip wages, the tip amounts that were reported to the employer will be shown in box 7.
Box 8: Employers may also be required to report allocated tip amounts based on their calculations – these amounts will be in box 8.
Box 9: Not used
Box 10: Dependent care benefits provided under a dependent care assistance program.
Box 11: Non-qualified deferred compensation plan payments.
Box 12: Several items may be reported here. The IRS provides a reference with specific codes and items to be reported. Some of the most commonly used codes are D (employee 401k contributions) and DD (cost of employer-sponsored health coverage).
Box 13: Boxes will be marked as appropriate for each employee’s status and situation
Box 14: Other. Basically, this can include anything else the employer wishes to report for the employee. Items here should be clearly labeled for employees.
Boxes 15: This field is used to report the state(s) where income tax was withheld and your employer’s state withholding tax account ID number.
Box 16: Total wages, tips, etc subject to state income tax.
Box 17: This is the total amount of state income tax that was withheld from your paycheck based on the elections made on the employee’s W-4 or state-specific withholding form, as applicable.
Box 18: Total wages, tips, etc subject to local income tax.
Box 19: This is the total amount of local income tax that was withheld from the subject wages reported in box 18.
Box 20: This box denotes the name of the locality related to boxes 18 and 19.
For a more detailed explanation click here to read the full 2020 W-2 Instructions published by the IRS.
Still working through getting W-2 forms generated and distributed to your employees? Contact Valor Payroll Solutions and see how we can start working with you now to reduce time and stress in the next year-end period.