My impression is that many people do not fully understand their W2 and what all the different numbers mean -- they simply enter the form into their tax software or give it to their tax preparer.
I think it is a good idea for everyone to have at least a basic understanding of their W2, as it will help them better understand their tax situation.
Boxes A through F identify the employee and employer
Boxes A through F of a W2 can typically be found on the left side of the form. They contain information identifying the employee and employer:
(A) Employee social security number.
(B) Employer identification number (EIN). This number identifies employer, kind of like the business’ social security number.
(C) Employer’s address.
(D) Control number. This number identifies the specific W2. This may be blank.
(E) Employee name.
(F) Employee address.
Boxes 1, 3, and 5 show different wage calculations
Boxes 1, 3, and 5 show different wage calculations. For some people, all three of these numbers will be the same. For others, there will be differences due to a variety of factors.
(1) Wages, tips, other compensation. This includes most types of compensation.
Tax-deductible (traditional) employer retirement account contributions are excluded. This is a common reason why Box 1 may be different than Boxes 3 and 5.
(3) Social security wages. Wages subject to social security tax. This box does not include social security tips and allocated tips.
Tax-deductible (traditional) employer retirement account contributions are typically included, even if excluded from Box 1.
The maximum (including Box 7) for 2023 was $160,200.
(5) Medicare wages and tips. Same as social security wages, including tips. However, there is no cap. This can be a common reason why Box 3 and 5 may be different for high income earners.
Boxes 2, 4, and 6 show different taxes withheld
Boxes 2, 4, and 6 show different taxes that were withheld. They correspond to the different wage boxes they are next to:
(2) Federal income tax withheld. It is important to remember that this is just the amount withheld. The actual amount of tax is calculated by preparing a return. If too much tax was withheld, a taxpayer will receive a refund. If not enough tax was withheld, they will owe.
(4) Social security tax withheld. 6.2% of Box 3.
(6) Medicare tax withheld. Includes regular and additional Medicare tax.
Boxes 7 and 8 show information about tips
(7) Social security tips.
(8) Allocated tips.
Box 9 is not currently used
(9) Box 9 is not currently used. It should be shaded in.
Boxes 10 and 11 show information about dependent care benefits and nonqualified plans
(10) Dependent care benefits
(11) Nonqualified plans
Box 12 shows codes for a variety of things
Box 12 shows codes for variety of things. Depending on the type of code, it may explain differences in the wages in Boxes 1, 3, 5. For example, if Box 1 is lower than Boxes 3 and 5 and code D is in Box 12, you know that at least some of the difference in wages is due to a traditional 401k deferral.
Here are several common codes:
D = Traditional 401k deferrals.
W = Employer contributions to a health savings account (HSA).
AA = Roth contributions to 401k.
DD = Cost of employer-sponsored health coverage.
Box 13 has checkboxes
(13) Box 13 has checkboxes for if the employee is a statutory employee, if the employee an active participant in an employer sponsored retirement plan, or if the W2 is reporting third-party sick pay.
Box 14 shows other information
(14) Box 14 shows other information that the employer wants to give their employees.
Boxes 15 through 20 show state and local tax information
Boxes 15 through 20 show state and local tax information. Pay attention to Boxes 16 and 17:
(16) State wages, tips, etc. This shows the state wages for the state entered in Box 15. Box 16 can be different than Box 1.
(17) Box 17 shows the state income tax withheld. Similar to Box 2 for federal income tax, this is just the amount withheld. The actual amount of tax is calculated by preparing a return. If too much tax was withheld, a taxpayer will receive a refund. If not enough tax was withheld, they will owe.
If you have any comments, questions, or ideas for future posts, please let me know
I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.
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