It’s easy to get overwhelmed by tax forms, but learning how to read your w-2 is very easy! Once you know these simple tips, filing taxes will go from a scary headache to an absolute breeze.
How to Read Your W-2
The first thing you should know is; every box on the form has a label with a number or letter in the upper left-hand corner. This label is frequently referenced when using tax preparation software, speaking with an accountant, or following a guide online.
The next tip should help you relax – only a few of these boxes are relevant most of the time. The boxes pertinent to most employees are;
- A – Your social security number
- B – Your employer’s identification number
- 1 – Wages, tips, and other compensation
- 2 – Federal income tax withheld
- 16 – State wages, tips, etc.
- 17 – State income tax
The Important Bits
Let’s go through each of the above and look at why they’re on this form.
Box A. Social Security Number
Your SSN is the number the IRS associates with you as a person. Your social security number is tied to all of your banking activity (since you used it to open your account), all work activities, and to your tax return. This one number is the thing that ties everything you do with money together.
Box B. Employer’s Identification Number (EIN)
An EIN is the exact business equivalent of a social security number. If someone runs their own business as a sole proprietor, their EIN is their social security number.
In much the same way, the EIN ties together all of their money, including how they spent it paying employees. This form, the W-2, is the document that links those payments to their tax return.
Box 1. Wages, Tips, and Other Compensation
This box effectively contains a summary of your pay, including tips. Importantly, this does not include many types of benefits, like an employee health plan, IRA, or 401k. Those items are in boxes 11 and 12.
Box 2. Federal Income Tax Withheld
This box contains the amount withheld from your paycheck to pay federal taxes. This box is notable because your federal refund (if owed to you) is the difference between the number in this box and the amount ideally withheld.
Box 16. State Wages, Tips, etc.
The number in this box is generally going to be the same as your net income anywhere else on the form but will not have benefits broken out separately as in boxes 11 and 12.
Box 17. State Income Tax
This box states what was withheld from your paycheck to pay state taxes. This box is relevant for much the same reason as Box 2 above – this is the amount of state taxes paid, and if it’s higher than the ideal amount to withhold, you will get the difference as your state refund.
Why understanding the W-2 form is important
If you have a solid grasp of how to read a W-2, you can have a good idea of whether you’re going to owe money or get a refund at the end of the tax year. This knowledge can help a lot with financial planning since that refund could be the difference between blowing your tax savings account on vacation, or having to send that money to the IRS.
Considering how valuable that information can be, you might not want to wait for your W-2 to come to figure out whether or not you’ll owe. If that’s the case for you, you can use sites like Paystubs.net to calculate what your W-2 form is going to look like before you even receive the physical form.
Now that you’ve had the critical parts explained, you can feel confident that you know how to read your W-2 well enough that you won’t be missing anything important when going over the cryptic form in the future.
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