Form W-2 is one of the most important tax documents for both employers and employees. Here's what they include and how they work.
Form W-2 (a.k.a. Wage and Tax Statement) is a tax document created by the Internal Revenue Service that reports United States wages paid to employees and taxes withheld for the calendar year, including all withheld Federal Insurance Contributions Act (FICA) Taxes. It can also include other payroll deductions applied to an employee's gross income, like 401(k) or health savings account contributions.
Created as part of the Current Tax Payment Act of 1943, employers submit the form every year to the Social Security Administration (SSA) and distribute copies to all employees except for independently contracted employees.
Employers must complete several tasks related to Form W-2:
Every copy of the form contains the same required fields, each of which records specific information:
Various pieces of identification information for the employee and employer, including the employee's SSN, the employer's Employer Identification Number (EIN) and address, etc.
The total taxable income the employee received, including base salary, commissions, reported tips, bonuses, and any other taxable compensation.
The total amount of federal income taxes the employer withheld from the Box 1 amount.
The total amount of the employee's income that's subject to Social Security taxes. Note, this amount may differ from Box 1 if the employee contributed to savings accounts for medical expenses, retirement, etc.
The total amount of Social Security taxes the employer withheld from the Box 3 amount.
The total amount of the employee's income that's subject to Medicare taxes. Note, this amount may differ from Box 1 if the employee contributed to savings accounts for medical expenses, retirement, etc.
The total amount of Medicare taxes the employer withheld from the Box 5 amount.
The total amount of income reported earnings from tips. This amount is included in the Box 1 amount.
The total amount of income the employer claims to have paid the employee in tips. This amount is not included in the Box 1 amount.
This box is reserved for future use by the IRS and should always be empty.
The total amount (if any) an employer paid or incurred for the employee's dependent care benefits.
The total amount (if any) of deferred compensation an employee received from an employer for a non-qualified retirement plan.
Specific amounts from Box 1 that went towards deferred compensation, such as savings accounts for medical expenses, retirement, etc. Each box will have a reporting code accompanying the amount listed to indicate exactly what the amount went toward.
For example, if an employer contributed $5,000 of the amount from Box 1 to the employee's HSA, one of these Box 12 spaces would report "W | 5000".
Indicates any of the following:
Lists any relevant tax information that doesn't fit elsewhere on the form. For example, if the employer withheld amounts for union dues or state disability insurance, those amounts would appear here.
The abbreviation for the state in which the employee owes withholding taxes and the ID number assigned to the employer by that state.
The total amount of the employee's income that's subject to state taxes.
The total amount of state taxes the employer withheld from Box 16.
The total amount of the employee's income that's subject to local taxes.
The total amount of local taxes the employer withheld from Box 18.
The name of the locality in which the employee owes local withholding taxes.
To determine whether they must file information returns electronically or in print, employers must add together the number of Form W-2s and information returns (from the below list) for the calendar year. If the total number of forms and returns is 10 or more, the employer must file them electronically.
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If W-2s are not sent by the January 31 deadline, and there is no approved extension, employers will receive penalties based on when the forms eventually do go out and the size of the organization. Businesses that gross $5 million or less in the last three tax years are considered small, while those that gross more are considered large. The IRS reserves the right to increase these penalties each year.
Penalty Per Form
Maximum Penalty Per Year
Small Businesses
Maximum Penalty Per Year
Large Businesses
Between 1 - 30 days
Over 30 days, but before August 1
On or after August 1
Note: If you don't send your employees their W-2 forms at all, you'll get hit with the same penalty as if you sent them on or after August 1.
Penalties due to incorrect amounts or errors vary by the severity and cause of the error, as well as when an updated version is submitted to the SSA.
For example, if an amount is off by less than $100 or none of the withheld taxes are off by more than $25, employers won't receive any penalties and no corrected W-2s need to be created. If, however, the error exceeds these amounts, employers need to submit Forms W-2C, Corrected Wage and Tax Statement before August 1 with a valid explanation for the error or severe penalties can follow.
Employers should also be ready to provide a Form W-2c to any employee who requests it, as incorrect forms can cause issues for the employee's tax returns, too.
Form W-2G is also similar to Form W-2 but focuses on income and taxes from gambling winnings instead of earned wages.
If a W-2 form is undeliverable, the employer should save the copy for at least four years. Do not try to forward the form to the SSA. HR and Payroll software can make it easier for employees to access W-2 forms electronically and avoid this issue.
Employers should produce a duplicate of the W-2 and write, "Reissued Statement" at the top (unless the W-2 was provided to the employee electronically). Also, employers should refrain from sending the reissued statement to the SSA.
