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what is a form w-2?

Table of contents:

Introduction:

Form W-2 is the summary statement of the “Annual Wages and Taxes ” which reports the income paid by the Employer to the Employee, the Taxes paid to the IRS and the Social Security Administration(SSA). In addition to Federal Taxes, the IRS also requires the Employer to withhold State and Locality Taxes on the Form W-2. The Social Security and Medicare taxes are also withheld on Form W-2. From a US Tax Compliance perspective, this form is very important in order to file your Tax Return by the due date.
 

***REMEMBER – Form W-2 is a US Tax Form. Please don’t expect your Foreign Employers to issue one!

 

What is Form W-2?

The IRS requires all employers to issue W-2 to its employees to report the wages they earned throughout the year. Irrespective of whether you were a Full-Time employee or Part-time, if they made more than $600, Form W-2 must be issued. Anyone,who doesn’t fit the definition of an “employee” and makes at least $600, Form 1099-NEC must be issued for them. This would be common with self-employed and Gig workers.

It has several boxes to report the Income, contributions and the Taxes. The most important one is Box 1 & 2. Box 1 reports the entire income made during the year. Box 2 reports the Federal Taxes withheld from it. Box 3 & 5 report the Social security and Medicare Wages. They could be more or less the same amount as Box 1. Taxes for Social security is 6.2% of the 1st, $142,800. For example, an employee who earns $150,000 in 2021 will pay $8,853.60 in Social Security taxes ($142,800 x 6.2%). This is reported on Box 4.Medicare Taxes remain at 1.45% of the entire Wages and reported on Box 5 with taxes on Box 6.

FORM W-2_CLOUD_EXPAT_TAX
Form W-2 Cycle

WHERE CAN YOU FIND YOUR FORM W-2?

Email! Most Probably. Your Employer must issue Form W-2 to its eligible employee, if it made more than $600 by law. The IRS requires all employers to issue Form W-2 to all its employees, no later than January 31st of next year, following the close of the Tax year, which usually is December 31st.

How Important is Withholding of Federal & State Taxes and Why updating Form W-4 is so Important?

The Employer withholds a certain portion of your Income based on the Form W-4 completed by the employee. The Form W-4 indicates the Employer the correct amount of Taxes to be withheld. Based on several factors like income level, filing status, Pension contributions, dependents, distribution and income from self-employment. You can find the W-4 calculator here . Once you figure out the correct estimate, this will determine if you would get a Refund or a Balance due on your Tax Return for the next Tax year. A similar calculation is needed for the employee who resides in the State which has Income Taxes. Apart from State Income Taxes, there are cities and localities in the United States which tax their Residents.

PROOFREADING YOUR Form W-2

Form W-2 has several information about the employee like their SSN, Address, Total Wages and States which tax their income. Since one copy of the W-2 goes to the IRS, it’s imperative that the employee verifies if the Total income on the W-2 is correct for the Tax year. If there are mistakes on the W-2, the employee can ask the employer to issue a “Corrected” Copy, also known as “Form W2C”. The employee must make sure the following items on the W-2 are correct.

  • Name
  • SSN Number 
  • State and Locality Wages/Taxes.  
  • The amount of Wages on Box 1.

The Taxpayer may face unnecessary burden with regards to filing Taxes if the Form W-2 is incorrect.

Covid 19 Update: Due to the pandemic, many employees moved to another state, different from where they worked, or where their offices were located. A typical example would be a Resident of New York and New York City moves to New Jersey. Many States like New York have come up with the “Convenience of the Employer Rule”, under which the employer is required to withhold New York state income tax from all wages paid to the employee if the reason the employee is working from home outside of the state is for the employee’s own convenience. Some other States have adopted similar rules. If the Taxpayer has relocated permanently to another State, they must inform their Payroll team in advance to withhold the correct amount of State and locality Taxes. The last thing you need is a huge balance due on the Tax day!

What should you do, if you don't receive your Form W-2?

You must 1st check with your Employer regarding the copy of your Form W-2. You must have it in your Mailbox or personally handed over to you latest by Mid-February. If your Employer isn’t cooperative and refuses to issue one, you may Call the IRS toll free at 800-829-1040 or make an appointment to visit an IRS Taxpayer Assistance Center (TAC).

When you call the IRS or visit a TAC office, please have the following information available:

●  Your employer’s or payer’s name and complete address including ZIP code, employer

identification number if known (see your prior year’s Form W-2 if you worked for the

same employer), phone number, and

●  Your name, address including ZIP code, social security number, phone number, and

dates of employment.

You should atleast have the paystubs with you for the previous year. Based on that, you can always calculate your Total income for the year.

The IRS could ask the employee to file a Form 4852 with the tax return, they are unable to get W-2 from their employer. This form could be considered as a substitute for Form W-2. If you receive a corrected Form W-2 after you filed your return with Form 4852, and the information differs from the information reported on your return, you must amend your return by filing Form 1040-X, Amended U.S. Individual Income Tax Return.

FORM_W-2_ANATOMY_CLOUDEXPATTAX
FORM W-2 ANATOMY

HOW TO READ ALL THE INFORMATION ON YOUR FORM W-2?

There are 3 sides to the Form W-2. The left side has the basic details like Name, SSN,EIN, Employer/Employee Address. The right side has basic Income details and Taxes withheld. The State and Local Taxes make up the bottom part of the Form 

Every Box on serves a purpose with regards to the reporting of the Annual Income and Taxes for the employee.

Box 1: – Reports the Amount of Wages, tips and other Compensation

Box 2: – Reports the Amount of Federal Income Taxes Withheld
Box 3: – Reports the Amount of Box 1 subject to Social Security Tax

Box 4: – Reports the Amount of Social Security Taxes Withheld

Box 5: – Reports the Amount of Box 1 subject to Medicare Taxes
Box 6: – Reports the Amount of Medicare Taxes Withheld
Box 7: – Reports the Amount of Tip Earnings subject to Social Security Taxes.
Box 8: – Reports the Amount which is not included in Box 1,3,5 or 7.(Usually Tips)
Box 9: – Blank
Box 10: – Reports the Amount of Dependent Care benefits(Amount over 5k) reported in Box 1. Box 11: – Reports the Amount distributed by Employers Deferred Compensation Plan.
Box 12: – Reports the Additional details about Box 1 via the codes determined by the IRS. Box 13: – If the “Retirement Plan” Box is ticked, special limits apply for the Traditional Ira.
Box 14: – Employers may use this box to report information such as state disability insurance taxes withheld, union dues, uniform payments, health insurance premiums deducted, nontaxable income, educational assistance payments, or a member of the clergy’s parsonage allowance and utilities.
Box 15: – Reports the State which has withheld the Taxes on Box 16
Box 16: – Reports the Amount of Earning subject to State Income Taxes.
Box 17: – Reports the Amount of State Income Taxes Withheld
Box 18: – Reports the Amount of Local Income subject to Taxes.
Box 19: – Reports the Amount of Local Income Taxes.
Box 20: – Reports the Locality City Name

How to use the FORM W-2 Information to file your tax return?

Although at the time of filing your Tax Return, your Accountant and the Tax Software will take care of all the boxes , as a Taxpayer you must know the basics on where those boxes affect your Tax Return. For Example, Box 1, gets reported on Line 1 of your Form 1040. Similarly, Box 2, gets reported on Line 25 (a) as withholding from Form W-2.

Final Words

Form W-2 is the summary of your Annual Wages and Taxes paid. This information is very useful at the time of Filing Taxes. If your W-2 is incorrect, request for a Form W2C. If you are Paper-filing your Tax Return, make sure to attach the right copy to the Tax Return. Finally, if your Employer refuses to provide you with the Copy, you may need to call the IRS.