How to Read a W-2

A W-2 is sent to every employee who is not an independent contractor. Understanding your W-2 is important when you prepare your tax returns.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Calculators
• File Cabinets
• Tax Consultants
• File Folders
• Pens
• Spiral Notebooks
• Tax Preparation Software

Critical Information

1. Look at box e to make sure you are the proper recipient of the W-2. If your name or address are incorrect, you may want to ask for a corrected version. However, spelling errors or mistaken addresses are not vitally important.
2. Look at box d to make sure your Social Security number is correct. It is very important that the number is exactly correct. Your employer must give you a corrected version with a correct Social Security number.
3. Look at box c for the name and address of your employer. Sometimes the employer uses an official name for tax purposes with which you are unfamiliar.
4. Read box 1 to determine the amount of your wages or salary. This box will also include tips you reported to your employer and other forms of compensation. This box has the amount of money on which you pay income taxes.
5. Read box 2 to see how much federal income tax was withheld from your wages during the year. You have already paid this amount. You may get some of this back, or you may have to pay more.
6. Look at box 16 to make sure the state code is for the state in which you worked during the tax year. If you worked in a state with no state income tax, box 16 may be blank. If you worked in two or more states with state income taxes, every state should be listed on one or more W-2s.
7. Look at box 17 to determine your compensation that is subject to state income tax. Your compensation may be split between states if you worked in more than one state.
8. Look at box 18 to determine what amount has been withheld from your wages for state income taxes. You have already paid this amount. You may get some back, or you may have to pay more.

Child Care Benefits, Allocated Tips, EIC

9. Read box 10 to see if you received dependent care benefits. Any amount over $5000 is automatically taxable and is already included in box 1. Fill out Form 2441 (1040) or Schedule 2 (1040A) to determine how much of these benefits under $5000 are taxable, if any.
10. Look at box 7 to see the amount of tips you have reported to your employer. This amount is already included in the amounts in boxes 1, 3 and 5.
11. Look at box 8 to see the amount of allocated tips. When all the servers at a restaurant do not report enough tips to equal a certain percentage of the sales of the restaurant, the restaurant is required to allocate to each server an amount of tips it is presumed you received. Allocated tips are not included in boxes 1, 3 or 7. You will have to add the amount in box 8 to the amount in box 1 as well as fill out Form 4137 and pay more taxes.
12. Read box 9 to see if you had any advanced earned income credit payments. This will only be there if you decided to participate in the advanced EIC program. If you do not qualify for EIC, but received advanced EIC payments, you will have to pay back this money.

Other Information

13. Read box 3 to determine the amount of your compensation that was subject to Social Security tax. The maximum amount that can be in box 3 is $72,600 for 1999.
14. Read box 4 to determine how much Social Security tax was withheld from your wages during the year. The amount should be 6.2% of the amount in box 3.
15. Read box 5 to determine the amount of your compensation that was subject to Medicare tax. There is no maximum amount.
16. Read box 6 to determine how much Medicare tax was withheld from your wages during the year. The amount should be 1.45% of the amount in box 5.
17. Look at box 11 to see if you received money from a nonqualified retirement plan. This amount is already included in box 1.
18. Look at box 12 to see the amount of any fringe benefits that are taxable. These are already included in box 1.
19. Look at box 13 to see what special information your employer is required to tell the government. This box has codes for the information. Codes and amounts for deferred compensation and pension plans are most common and will have the codes D, E, F, G, H or S. These amounts will not be in box 1, and you will not be taxed on them now, but they will be included in boxes 3 and 5. Other codes are less common and are explained on the back of the W-2 (copy C). This box is for information only.
20. Read box 14 to see what additional information your employer is telling the government. The most common is health care benefits (and sometimes disability insurance payments). This box is for information only.
21. Look at box 15 to see what box or boxes have been checked. If the statutory employee box is checked, see a tax preparer. Usually this is only for drivers who distribute fresh foods, some traveling salespersons, life insurance salespersons and homeworkers employed for needlework. If the deceased box is checked, the IRS will believe you are dead. The pension plan and deferred compensation boxes are most commonly the ones that are checked.
22. Read boxes 19, 20 and 21 to see is there is a local government entity to which you are subject to a tax. In a few states, such as California and New York, these boxes are used for state disability insurance taxes.

Tips & Warnings

• The IRS uses Social Security numbers to keep track of taxpayers. If the Social Security number on the W-2 matches the one on your Form 1040, you are fine. If the name on the W-2 does not match the one on your Form 1040, it is not very important. If the Social Security number is wrong, don't change it yourself. Your employer must change it, because he must send a correct copy to the government.
• Businesses often make mistakes on W-2s. Make absolutely sure the amounts in boxes 1, 2, 16 and 17 are correct. Your taxes depend upon it.
• The government gets a copy of your W-2. You should never ignore a W-2. However, getting a W-2 does not mean you have to file a return if your income is below a certain level for your filing status. You do have to file a return if you want to get back the money withheld in income taxes.
• The amounts in boxes 3 and 5 are, generally, your total income for the year from this employer. These amounts are often different from the amount of taxable income shown in box 1 (and box 17) because of deferred compensation and flexible spending accounts.
• People who make more than $72,600 sometimes have too much Social Security taxes withheld. If you had more than $4501.20 taken out for Social Security taxes in 1999, you paid too much. See "How to Determine if You Paid Too Much Social Security Tax" to get credit for the excess withholding.
• Pay special attention to the amounts in box 13 for deferred compensation and pension plans. If these are not correct, and they sometimes aren't, your employer may not be keeping proper track of your deferred compensation or pension plan. Go to payroll and get a printout of your contributions to your plan. Compare it to your pay stubs or your records. This is true for codes D, E, F, G, H or S.
• If your employer paid for your all or part of your moving expenses, take a close look at your W-2. If this amount is included in your income in box 1, fill out Form 3903 to claim the moving-expense deduction - otherwise, you'll be taxed on this additional money. (Box 14 may or may not give you information about moving expenses.)
• There is a rare case where the amount in box 11 is due to a change of status in your nonqualified pension plan. In that case, you have not had a distribution, but the money is only now being subject to Social Security and Medicare taxes. Talk to a tax consultant if you want a more detailed and complex explanation.