Tens of millions of American employees receive a W-2 each year. However, navigating your W-2 may feel intimidating with the various boxes and box codes. Decoding your W-2 is necessary for filing your tax return.
Reading your W-2 does not have to be challenging. Lever1 is here to help you, starting with understanding the basics of your W-2.
What is a W-2?
A W-2 is a tax form that summarizes your income and how much tax was withheld from the prior year and is used to help file your tax return. Employers must send W-2s to employees (who were paid at least $600 during the year) and the IRS in January. If you have not received your W-2 by the end of February, contact the IRS to ensure you are able to file your tax return. Many employers also send their W-2s electronically. Independent contractors and freelancers do not have taxes withheld by an employer and therefore get 1099s from their clients rather than W-2s.
Understanding your W-2
W-2s feature 20 numbered boxes that cover wages and taxes. The details included in each box are as follows:
Box 1: Includes your taxable employee wages, tips, bonuses, and any other compensation.
Box 2: Shows the total federal income tax withheld from your paycheck by your employer. This amount should be included on the federal income tax withheld line of your return.
Box 3: Shows your wages subject to Social Security tax, which often differ from the amount reported on Box 1. Differences often include things like health insurance deductions. Social security wages have a cap and in 2024 that cap was $168,600.
Box 4: Shows how much Social Security tax was withheld from your pay. To recalculate, simply take Box 3 and multiply it by .062 or 6.2% (up to $168,200).
Box 5: Shows your wages subject to Medicare tax, which may also differ from the amount reported on Box 1. Medicare wages never cap out, and if your income is high enough, you may also be required to complete Form 9859, Additional Medicare Tax.
Box 6: Shows how much Medicare tax was withheld from your pay. To recalculate, take your Box 5 wages and multiply it by .0145 or 1.45%.
Box 7: Shows how much of your reported tip income was subject to Social Security tax.
Box 8: Shows the amount of taxable tip income allocated from your employer, which is not included in Box 1, but should be included in your total taxable income from the employer.
Box 10: Shows the amount of dependent care benefits provided by your employer or incurred on your behalf.
Box 11: Shows the total amount distributed to you during the year from your employer’s taxable deferred compensation plan.
Box 12: The W-2 codes in this box can vary; it is used by employers to provide more detail about some or all the reported pay in Box 1.
Box 13: Indicates if your earnings are subject to Social Security and Medicare Taxes but are not subject to federal tax withholding, if you participated in certain retirement plans, or if you were allocated certain types of sick pay.
Box 14: This box serves as a catch-all for various types of income and deductions that do not have a prescribed box that the employer thinks is useful information to disclose. Since it is not prescribed by the IRS, but rather contains information at the Employer’s discretion, it is disregarded from an IRS perspective.
Box 15: Shows the employer’s state(s) and the employer’s state identification number.
Box 16: Shows how much of your pay must be reported to the state. Box 16 may have multiple states requiring 100% of all wages paid to be reported. This does not necessarily correspond to your state taxable income, which can only be calculated in a state’s income tax return.
Box 17: Shows how much was state income tax was withheld from your pay.
Box 18: Shows how much income was subject to local taxes.
Box 19: Shows how much local tax was withheld from your pay.
Box 20: Shows the locality in which the taxes were withheld.
Understanding your W-2 is vital for managing your taxes and financial well-being. This document provides crucial details about your income, taxes withheld, and other important financial information. Each box serves a distinct purpose, so by familiarizing yourself with the meaning of each box, you can ensure that your tax return is accurate. If you have questions about understanding your W-2 or managing your employees’ W-2s, reach out to our expert staff here at Lever1.
Brenda Colburn | Assistant Controller
Brenda Colburn is a Certified Public Accountant with over thirty years of experience. She has served in many accounting roles throughout her career and worked in a variety of industries. As Lever1 Assistant Controller, Brenda assists the accounting team and ensures best practices are met in all areas. Her experience working directly with clients is an added benefit for small businesses looking to outsource their administrative tasks to our team of experts.