OVERVIEW

A Form W-2 shows the amount of taxes withheld from your paycheck during the year and is used to file your federal and state income tax return. Here are the basics.

Introduction
The IRS (Internal Revenue Service) requires employers to report employee wage and salary information on Form W-2. Your W-2 also reports the amount of federal, state and other taxes withheld from your wages or salary. As an employee, the information on your Form W-2 is extremely important for the preparation of your tax return. To make sure you receive it on time, the IRS requires your employer to send you your W-2 form by January 31 following the close of the tax year, which is usually December 31.

You should only receive a Form W-2 if you work as an employee. If you are an independent contractor or self-employed, perhaps the work you do may be the same as that of an employee, but you will receive an income report on Form 1099 instead of a Form W-2.

Form W-2 is divided into boxes that report various items related to your income. Box 1 of Form W-2 lists your annual salary and wage payments with the amount of federal income tax withheld in Box 2.

Because only a portion of your income is subject to Social Security taxes, Box 3 may underreport your total wages for the year. Other boxes on Form W-2 include wages subject to Medicare taxes, Social Security taxes withheld, and your state income tax withholding information, if applicable.

Importance of tax withholding
When your employer withholds part of your paycheck for federal income taxes, those withholdings are remitted to the IRS throughout the year. You may not realize it, but in most cases, you can’t wait until the deadline to pay your tax liability in full. The IRS requires everyone to make periodic payments throughout the year; however, your employer takes care of this for you.

When preparing your federal return and calculating your tax for the year, the amount of your employer’s withholding shown on the W-2 must be subtracted from your tax liability. Once you perform this calculation, you will know if you should expect a refund or if you have a balance due. If you file a state income tax return, the same calculation is necessary for the amount withheld to pay your state taxes.

Verification of your name and Social Security number.
The identifying information section of the W-2 is essentially a tracking function. If the income you report on your tax return does not match the information on your Form W-2, the IRS will want to know why. Similarly, the IRS will compare the reported payment amounts to the amounts on your employer’s corporate tax return form to corroborate their accuracy.

But most importantly, because the IRS receives a copy of your Form W-2, it already knows if you owe taxes and can contact you if you do not file a tax return. If the name or Social Security number on your Form W-2 is incorrect, you should report it immediately to your employer for correction.

Attaching your W-2
As you complete your tax returns and prepare them for filing, remember that a copy of your W-2 should always be attached. If you are using the e-file service through TurboTax, then your W-2 information is sent along with your tax return. However, if you file your tax return by mail you must remember to attach a copy of your W-2 to your return.