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The new year brings cause for celebration- turning the page on the previous year, establishing new goals, and preparing for tax season.

That’s right, if you were a full-time employee in 2020, you should have already received your Form W-2 indicating your taxable income and a bevy of other pertinent info for the year.

If you worked as a contractor, you can likely expect to receive a 1099-MISC form, depending on your employment agreement (1099 vs. W-2).

What is the Form W-2?

Form W-2 is how your employer reports your taxable income.  On it includes a host of information which can be confusing to the untrained eye.  Some of the items included on the Form W-2 are withheld taxes for federal and state obligations.

Other items displayed include:

  1. Payroll Taxes
    1. How much money was paid to the government by your employer on your behalf for Social Security (Old Age Survivors and Disability Insurance or OASDI) and Medicare
  2. Pre-Tax Benefits
    1. Money paid toward health insurance by your employer
    2. Contributions made towards qualifying employer-sponsored retirement plans
    3. Amounts received in dependent care benefits (flexible spending account)

I Can’t Find My Form W-2.  Can I Still File My Taxes?

In short, no.  You need the IRS Form W-2 to file your taxes because it contains information not found on your final pay stub for the year.  Many employers will provide electronic W-2s that can be accessed in early January.

If you want to file before you receive it in the mail, you can try contacting your payroll or human resources departments and submitting a W-2 request.

How Much Money Do I Need to Make to Receive a W-2?

Every employer engaged in a trade or business who pays employees more than $600 in noncash payment for the year must file a Form W-2.  This means you employer must submit this tax information to the IRS if it withheld:

  • income, Social Security, or Medicare taxes
  • income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4

When Should I Get My Form W-2 for the 2020 Tax Year?

The IRS requires employers to provide their W-2s to the government and employees by January 31 or face penalties.  The IRS defines provide as “get in the mail,” meaning you will likely have the document in your physical possession the first week of February.

If you haven’t received it or think you might have misplaced, get in contact with your employer’s payroll or human resources departments.

And if you quit your job before the end of the year OR DIE, you’ll still receive your W-2.

What Happens if My Employer Makes an Error?

Mistakes happen.  If you find something amiss on your W-2, be sure to contact your employer to highlight the mistake and ask for a corrected W-2.

Fun fact: while it will take you longer to receive your corrected W-2, if the error involves a significant item like a dollar amount or your address, your employer might get fined.

What Are My Obligations?

As an employee, you must report all wages earned during the year on your tax return.  As mentioned above, the minimum you must earn for receiving any type of income tax-related document is $600 in wages paid.

This means if you made $550 as a contractor working for Uber, the company is not required to provide you with documentation supporting this income.  However, it is still your responsibility to claim all income, earned or unearned unless specifically excluded.

When you receive your W-2, you should have three copies: Copy B, C and 2.  If you choose to mail in your tax return, you must Attach Copy B to your return.

You should also keep it with your other documents for three years from when you filed your return.  You don’t want to get audited, but it helps to have this documentation if you do.  You’ll want to be sure to keep Copy C with your tax documents as well.

What Does Each Box Mean on a Form W-2?

This year, I’m volunteering my time for my company’s free tax preparation services for our customers.  I work at a public utility in the southeast and we offer this service each year as assistance to our low- to moderate-income customers.

Recently, I attended my first session and will have to admit to not knowing having the form memorized.  The most difficult to items recall are the W-2 Box 12 codes.  That’s the one with a lot of abbreviations which mean many different things.

But before we get to that box, let’s run through the boxes and what they mean for W-2 employees.

Box 1 reports your taxable wages or salary earned from this employer.  It includes wages, salary, tips you reported, bonuses, and any other taxable compensation.  This is also where you will find taxable fringe benefits like group term life insurance.  This reports your W-2 gross income from your employer.

Box 2 reports the total federal income tax withholding held and disbursed to the IRS by your employer.

Box 3 reports the total amount of your W-2 wages subject to Social Security tax.  This tax is assessed on wages up to $128,400 for 2018 at a rate of 6.2%.  Your employer also pays 6.2% on these wages.

Box 4 reports the total amount of Social Security taxes withheld from your pay stubs by your employer.  For 2018, the figure should not exceed $7,960.80 ($128,400 * 6.2%).  If you held more than one job during the year and your wages exceed $128,400, you may have overpaid on your Social Security taxes.

If you did, you can claim a refundable credit equal to this amount on your Form 1040.

Box 5 reports the amount of W-2 wages subject to Medicare tax.

Box 6 reports the amounts of Medicare taxes withheld.  The tax is a flat rate of 1.45% and has no wage cap.  For example, if you made $100,000, your W-2 Box 6 should say $1,450.  However, the amount in Box 6 could be higher due to an additional Medicare tax which was implemented in 2013.

It adds an additional 0.9% on incomes over $200,000 if you’re single or head of household or $125,000 if you’re married filing separately, and $250,000 if married, filing jointly.

If all these taxes are beginning to add up, this is a great time to learn how to pay zero tax on passive income.  Other than any applicable state taxes, you can sidestep most of the payroll taxes listed above.

However, this requires the passive income to meet the criteria defined by the IRS for “passive”.

Box 7 reports tip income you declared to your employer (if any).  The amounts shown in Box 7 and Box 3 should sum to the amount displayed in Box 1.  Also, this sum should not exceed $128,400 in 2018.

Box 8 reports tip income allocated to you by your employer.  This income needs to be added to your taxable wages shown in Boxes 1, 3, 5, or 7 and you will need to calculate Social Security and Medicare taxes on this amount in addition to what you paid in Boxes 4 and 6.

Box 9 is no longer needed on the form.  It was meant to display the advance earned income tax credit but this practice has since been ended.

Box 10 reports any dependent care expenses reimbursed from your employer’s flexible spending account (FSA).  It can also show the amount of dependent care services paid for by your employer.

Any amounts under $5,000 aren’t considered taxable.  However, any amount in excess of this threshold must be reported in Boxes 1, 3 and 5.

Box 11 reports any money distributed to you from your employer’s non-qualified deferred compensation plan or pension plan.  This amount is already included as W-2 taxable income in Box 1.

Box 12 includes a lot of possible information related to deferred compensation or other compensation. The IRS has attempted to simplify this box by allowing employers flexibility with how they report this information.

Employers may enter a single letter or double letter code with a corresponding amount of compensation.  For a reference guide of what these letters mean, see this publication on page 12.

Box 13 will have places for three checkmarks to appear.  If you are a statutory employee, the boxes will be marked.  This means you report wages on your W-2 on Form 1040 Schedule C.  Your wages are not subject to withholding so you should see a zero or blank in Box 2.

However, they are subject to payroll taxes (Social Security and Medicare), so Boxes 3 through 6 should have content.

Additionally, they will be checked if you participated in your employer’s retirement plan during the year.  This includes a 401(k) plan, a 403(b) plan, SEP-IRA, SIMPLE-IRA, or another type of pension plan.  Please note, your ability to deduct contributions to an IRA plan might be limited based on your income if you participated in a retirement plan. Further, if you contributed to a Roth IRA, you cannot deduct these from your income taxes. Similarly, kids couldn’t deduct contributions made to Roth IRAs for kids.

As a final note for Box 13, you will also see a check if you received sick pay from a third-party under your employer’s insurance policy instead of sick pay directly from your employer.  For reference, sick pay is not included in Box 1 wages although it’s typically subject to payroll taxes.

Box 14 reports additional tax information from your employer.  This information will come with a brief description to denote why they’re listed.  Such items could include employer-paid tuition assistance, after-tax contributions to a retirement plan, union dues, or other benefits paid by your employer.

Box 15 reports your employer’s state and state tax identification number.

Box 16 reports the total amount of wages you earned in a state.  If you worked across state lines for your employer as part of your work, there will be multiple lines shown in this Box.

Box 17 reports the associated state income taxes withheld from the amount shown in Box 16.  These might count as tax deductions you can use toward the $10,000 state and local taxes limit (SALT taxes) if you itemize in 2018.

Box 18 reports the total amount of wages you have earned subject to local, city, or other applicable income taxes.

Box 19 reports the total amount of taxes withheld from wages shown in Box 18.  This amount might also be deductible as part of the SALT taxes deduction limit on Form 1040 Schedule A.

Box 20 reports a brief description on the taxes paid in Box 19.

About the Author

Riley Adams is a licensed CPA who worked at Google as a Senior Financial Analyst overseeing advertising incentive programs for the company’s largest advertising partners and agencies. Previously, he worked as a utility regulatory strategy analyst at Entergy Corporation for six years in New Orleans.

His work has appeared in major publications like Kiplinger, MarketWatch, MSN, TurboTax, Nasdaq, Yahoo! Finance, The Globe and Mail, and CNBC’s Acorns. Riley currently holds areas of expertise in investing, taxes, real estate, cryptocurrencies and personal finance where he has been cited as an authoritative source in outlets like CNBC, Time, NBC News, APM’s Marketplace, HuffPost, Business Insider, Slate, NerdWallet, Investopedia, The Balance and Fast Company.

Riley holds a Masters of Science in Applied Economics and Demography from Pennsylvania State University and a Bachelor of Arts in Economics and Bachelor of Science in Business Administration and Finance from Centenary College of Louisiana.