Tax season is upon us, and one of the most important forms you'll receive is the W-2, also known as the Wage and Tax Statement. As a Formations customer, you can view and download your W-2 directly from your Payroll module.
The W-2 form outlines crucial details about your income and taxes withheld throughout the year.
Let's dive into the most important sections of the W-2 form:
- Identification Numbers: At the top of the form, (Box a), you'll find your Social Security number. Below it, on (Box b), will show your business EIN, as the business you own, is your employer. It's crucial to verify that this information is accurate to avoid any processing delays or errors in your tax return.
- Employee Information: Here, you'll find your personal information, including your name and home address.
- Wages, Tips, and Other Compensation (Box 1): This section reports your total taxable wages, salary, bonuses, tips, and other compensation received from your employer during the tax year.
- Federal Income Tax Withheld (Box 2): Box 2 displays the total amount of federal income tax withheld from your paychecks throughout the year. This figure represents the taxes you've already paid to the IRS and may affect whether you owe additional taxes or are eligible for a refund.
- Social Security Wages (Box 3) and Medicare Wages and Tips (Box 5): These sections show the amounts of your wages subject to Social Security and Medicare taxes, respectively. It's important to note that there are caps on these taxes, so if your earnings exceed a certain threshold, you may not see additional deductions in these boxes.
- Social Security Tax Withheld (Box 4) and Medicare Tax Withheld (Box 6): These boxes indicate the total amounts withheld from your pay for Social Security and Medicare taxes. Social Security tax is withheld at a rate of 6.2%, while the Medicare tax rate is 1.45%. Additionally, higher-income earners may be subject to an Additional Medicare Tax.
- State and Local Tax Information: Depending on where you live and work, your W-2 may also include boxes for state and local income taxes withheld, along with corresponding wages subject to those taxes. These amounts vary based on your state and local tax rates.
- Tax Coded Items (Box 12): Box 12 on Form W-2 represents various types of compensation or benefits that are subject to different tax treatments. It may include a combination of letters and numbers indicating different types of payments or benefits. This is where you will find the contributions to your retirement plans, such as your 401(k). It can also include deferred compensation plan, health insurance related, stock plan related items, substantiated employee business expense reimbursements, etc. Each code may have different tax implications, so it's important to review your W-2 form carefully and consult with your Formations success team if you have any questions about how to report these amounts on your tax return.
- Other Compensation and Benefits (Box 14): Box 14 is a catch-all section that may include additional information provided by your employer. This could include items such as union dues, educational assistance, or taxable reimbursements.
Understanding these key sections of your W-2 form is essential for accurately reporting your income and ensuring compliance with tax laws. If you have any questions or notice discrepancies on your W-2, contact your success team for clarification. By being proactive and thorough in reviewing your W-2, you can streamline the tax-filing process and maximize your tax benefits.