As a self-employed individual, you might not be familiar with form W-2. However, as a new S-Corp owner, you will be getting a W-2 from your new company. Here's what you need to know.
The W-2 Wage and Tax Statement is an annual form that the company will prepare and provide to each employee. It shows the wages paid and the taxes withheld for the year for each employee. Reported taxes include federal withholdings and Social Security and Medicare withholdings. Employers must provide W-2's to employees and the Social Security Administration (SSA) by January 31 of the following year.
How to Read Form W-2: Wage and Tax Statement
W-2 forms include both numbered and lettered boxes that an employer must fill out and reflects how much you earned and taxes withheld.
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Boxes A through F
The lettered boxes on a W-2 include the name and address of you and your employer, your Social Security number, and your employer's EIN and state ID number.
Boxes 1 and 2
Box 1 shows your taxable income, including wages, salary, tips, and bonuses, while Box 2 shows how much federal income tax your employer withheld from your pay.
Boxes 3 and 4
Box 3 details how much of your earnings were subject to Social Security tax, and Box 4 the amount of Social Security tax that was withheld.
Boxes 5 and 6
Box 5 spells out how much of your pay is subject to Medicare tax and Box 6 how much was withheld. The employee portion of the Medicare tax is 1.45%.
Boxes 7 and 8
If part of your pay is in the form of tips, these boxes show how much you reported in tips (Box 7) and how much your employer reported in tips it paid to you (Box 8).
Box 9
This box was used to reflect a now-defunct tax perk, so it is left empty.
Box 10
Box 10 reports how much you received from your employer in dependent care benefits (if applicable).
Box 11
This box details how much deferred compensation you received from the employer in a non-qualified plan.
Box 12
Box 12 details other types of compensation or reductions from your taxable income and a single or double letter code that corresponds to each. It might include, for example, contributions to a 401(k) plan. Codes are detailed in the IRS' W-2 instructions.
Box 13
This box has three sub boxes designed to report pay that is not subject to federal income tax withholding, if you participated in an employer-sponsored retirement plan, or if you received sick pay via a third-party, such as an insurance policy.
Box 14
Box 14 allows an employer to report any other additional tax information that may not fit into the other sections of a W-2 form. A few examples are state disability insurance taxes withheld and union dues.
Boxes 15-20
The last six boxes on a W-2 all relate to state and local taxes, including how much of your pay is subject to these taxes and how much was withheld.
FAQ
What do I need to do to produce my W-2?Nothing! As a Formations customer, we will take care of it for you and will let you know when it's ready for you to review and download.
Will Formations send me a W-2 on behalf of my business?You can download your w-2 from the Document HUb in your Formations Account. When your most recent W-2 is available, we will notify you with a link to view and download it. You can also request a copy from your customer success manager.
Who gets copies of my W-2?
An employer prepares six copies of each form W-2 per employee. Yes, that's a lot of paperwork, but we take care of all of it for you!
Copy A is transmitted to the Social Security Administration (SSA) along with a form W-3 (the form W-3 reports the total of all of the forms W-2 for the employer). The due date for employers to get that information to SSA is February 28. In addition, copy 1 is issued to any applicable state, city, or local tax department. Finally, the employer retains copy D.
As an employee, you get three copies of your form W-2. Those three copies must be issued by January 31 of each year. Copy B is for use in reporting your federal income taxes and is generally filed with your federal income tax return (unless you are e-filing in which case you have to provide it to the preparer but it is not usually forwarded to IRS). Copy 2 is for use in reporting your state, city or local income tax and is filed with the relevant taxing authorities. Finally, copy C is for your records (you should retain Copy C for at least three years after you file or the due date of your return, whichever is later).
All of this is taken care of for you by Formations, so you don't need to worry about it.
Does the reduction in taxes paid for social security and Medicare affect the amount received for social security benefits in retirement?
Balancing Social Security and tax savings can be a bit complex. Yes, Social Security is based on your maximum of 35 years of paying into the program. However, we see most customers use their tax savings on social security and Medicare to add to their easily convertible retirement programs (IRAs, 401ks, ROTH, etc.). In these programs, you have more flexibility and investment options. We recommend that you speak with your financial advisor to ensure the right blend of trade-offs for your lifestyle and retirement goals.
How Much Money Do You Need to Make to Get a W-2?
In general, you will receive a W-2 from an employer if you earned at least $600 in a given year. Since as an S-Corp, you are the employer and the employee, Formations will issue the W-2 on your behalf.
What Is the Difference Between a W-2 and a W-4?
A W-4 is filled out by employees to provide their employer with their tax ID number (usually SSN), marital status, the number of allowances and dependents, and how much tax to withhold with each paycheck. The W-4 is filled out when an employee is first hired or if any changes must be made to filing status or withholding. The W-2 is filled out by employers at the end of the tax year and sent to employees to input on their tax returns.