IRS Form W-2 Guide
Also known as a Wage and Tax Statement, W-2 is the IRS form employers are required to complete and distribute to their employees by January 31 of each calendar year. The W-2 needs to be submitted with an individual’s tax returns. Without it, the IRS will not accept an individual’s income tax return as valid.
Employers are required to submit W-2s to each employee. They must also file a copy of the form with the Social Security Administration (SSA) by the end of February. The SSA uses that information to determine future social security, disability, and Medicare benefits.
The fields on each W-2 form is the same; however, employers fill out the forms differently, depending on a number of factors, including the state where they do business and whether there are tax-exempt benefits
W-2 forms are different from two other tax forms they are sometimes confused with, W-9 and W-4 forms. A W-9 form, officially known as Request for Taxpayer Identification Number and Certification, is the form employers general have independent contractors fill out at the time of hire. That form contains all the information needed to disseminate IRS 1099 misc forms, which report income earned above a certain threshold directly to the contractor. A W-4 form, on the other hand, allows an employee to designate withholding allowances in order to determine how much federal tax will be taken from their check each month.
Step-by-Step Guide to Filling out the W-2 Form
The W-2 is a relatively simple and straightforward tax document. You will mostly enter information that is already available from payroll and personnel records. You will also need to have some information about your business, such as an Employer Identification Number (EIN) and, in most cases, a State ID Number.
The main challenge to filling out the form correctly is to avoid errors when entering names and numbers in the fields. Always double-check the boxes to make sure you haven’t entered the wrong figures or misspelled any employee names or addresses. If you are using bookkeeping software to calculate federal, state, and local tax withholdings, you need to be absolutely certain that the software is up-to-date. When in doubt about current tax regulations that may impact the withholding status of your employees, you may want to consult a tax expert.
IRS Publication 15, the Employer’s Tax Guide, is the seminal guide to filling out the form. What follows is a pared-down, simple guide that walks you through each of the lettered and numbered fields on the W-2 form, providing a brief explanation when necessary.
Lettered Fields (a-f)
The lettered fields, located on the left-hand side of the W-2 form, provide basic identification for both the employer and the employee. An exception is the state ID number, which goes in a numerically labeled box at the bottom of the form, along with the other state and local tax information.
Field a: Employee’s Social Security Number
Nine-digit social security number of the employee for whom this W-2 form is being prepared for.
Field b: Employer Identification Number (EIN)
An Employer Identification Number (EIN) is a unique nine-digit number that the IRS assigns to businesses. While not every registered company needs to have an EIN, you must have an EIN in order to hire employees.
Field c: Employer’s Name, Address, and ZIP code.
You need to enter the full, legal name you used when you registered your corporation or LLC. Also the complete address of your business, including the zip code.
Field d: Control Number
The control number identifies each employee’s unique W-2 in the company’s records. The numbers are automatically generated by your company’s payroll processing software.
Field e-f: Employee’s Name, Address and ZIP code.
Make sure you have entered the current address of each employee. You may need to double-check to make sure this information is accurate.
Numerical Fields (1-20)
The numbered fields run in a double column on the right-hand side of the W-2 form and continue across the bottom of the form. Wages and federal tax information is contained in the right-hand columns.
The bottom field displays state and local tax information in a series of horizonal numbered fields. It is divided by a dotted line to provide more than one space for entering information. If you have employees working for your business in more than one locality or state, you will need to fill out withholdings for each locality, utilizing the space on either side of the dotted line.
Field 1: Wages, Tips, Other Compensation
This field reports the total of all your employee’s taxable wages or salary, including bonuses and taxable fringe benefits like group term life insurance. It does not include pre-tax benefits, such as contributions to a 401(k) or health insurance plan.
Field 2: Federal Income Tax Withheld
How much federal income tax you withhold from a given employee’s paycheck is determined by the number of withholding allowances they designated on their W-4 form.
Field 3: Social Security Wages
Only a portion of each employee’s total wages are subject to tax from the Social Security Administration. Above a certain threshhold, $128,400 in 2018, this so-called payroll tax stops. Thus, no employee should have a wage larger than the threshhold figure entered in this field.
You don’t include employee tips in this field. See Field 7.
Field 4: Social Security Withheld
Employers and employers contribute equally to this tax, paying 6.2 percent each of the employee’s wage up to the allowable threshold amount. The figure in Field 4 should not exceed the taxable threshold x employer’s share, or $7,960.80 in 2018.
Field 5: Medicare Wages and Tips
The figure you enter in this field reflects the total taxable income each employee earned with your company. Unlike Social Security, there is no maximum threshold.
Field 6: Medicare Tax Withheld
Employers and employees pay matching tax rates into Medicare — 1.45 percent each. Not only is there no upper threshold on Medicare earnings; highly compensated individuals must pay an additional .9 percent above the standard rate, or 2.35 percent for couples making over $250,000 a year. Only the employee pays this additional tax, however. The employer payment remains fixed at 1.45 percent.
Field 7: Social Security Tips
You include employee’s reported tips in this field. When added to Field 3, the sum should equal the number in Field 1.
Field 8: Allocated Tips
If your business is a large food or beverage establishment, and the amount of tips an employee reported to you fell below the IRS’s approved percentage rate, you may assess additional compensation to your employees in the form of allocated tips. Unlike any tips reported in Field 7, this sum is not included in the amount of total income reported in Field 1.
Field 9: Advance EIC Payment
This field is a relic of a tax policy that no longer is relevant and should always remain blank.
Field 10: Dependent Care Benefits
You use this field to report income you reimbursed an employee for dependent care expenses, including through a flexible spending account.
Field 11: Nonqualified Plans
This field is where you report any amounts you distributed to your employees from a non-government Section 457 pension plan or a non-qualified deferred compensation plan This amount should be included as taxable income in Field 1 as well.
Field 12: Deferred Compensation
There are numerous forms of deferred compensation recognized by the IRS, each of which has its own tax code. The W-2 form mandates you to report as many of these forms of compensation as are relevant to your employees in Field 12. Some of the more common are group term life insurance benefits in excess of the $50,000 worth you can provide as a tax-free benefit and the non-taxable portion of temporary disabillity or sick pay. The IRS recognizes roughly 30 different forms of deferred compensation.
Field 13: Checkboxes for Statutory Employees, Retirement Plan, and Third Party Sick Pay
In this field, you check any of the three boxes that are relevant to the employee in question. A statutory employee is someone who works for your company but doesn’t receive compensation in the form of a regular paycheck — for instance, they work 100 percent on commission. You check “Retirement Plan” if your employees have access to a 401k or 403b at work, which may limit their ability to get tax incentives normally associated with an IRA.”Third Party Sick Pay” refers to compensation your employee received from an outside party, such as an insurance company.
Field 14: Other
You can use this field to report any compensation that doesn’t fall into the other categories listed on the W-2 form.
Field 15: State ID Number
State ID numbers function in much the same way as EINs, to give your business a recognizable identity for tax purposes. Unlike the EIN, which is portable — i.e., valid anywhere you do business in the United States — the state ID number is only valid in that state. Whether you need a state ID for your business depends on several factors, including how the business handles income and employment tax.
Field 16: State Wages, Tips, Etc.
This field is where you report the income you paid to the employee that is taxable at the state level. If they worked for your company in more than one state, you must separate the incomes out, placing the income taxable to each state on a separate line. If you do business in one of the seven U.S. states that has no income tax, this field will be blank.
Field 17: State Income Tax
This field shows the total amount of state income tax you periodically withheld from your employee’s checks over the course of the year.
Field 18: Local Wages, Tips, Etc.
You report all income that is subject to taxation by your locality. This figure may be different than the figure in Field 16.
Field 19: Local Income Tax
If one or more of the localities you do business in requires employees to pay local income tax, this is the field where you report the amount.
Field 20: Locality Name
You’ll enter a brief description of the city or town that withheld taxes.
Where Do I Send the Completed Copies of the W-2 Form?
In total, you will have six copies of the form that need to be distributed.
- Copy A goes to the Social Security Administration for their records.
- Distribute Copy 1 to the state, city, or local tax department that has withheld taxes.
- Copies B, C, and 2 go to the employee so that they can submit these copies along with the appropriate tax forms.
- Copy D is for your company’s records; you should keep it on file for at least four years.