W-2 forms are a type of information return that documents wage earnings. Wage earnings are earnings paid by employers to workers who are considered employees by the Internal Revenue Service. These earnings are separate from non-wage earnings that are paid to contractors or freelancers. Non-wage earnings are reported with 1099 forms.
W-2 forms are first sent by employers to the Social Security Administration, where they are processed and sent to the IRS. W-2 forms are also sent to employees for their own tax information and returns. An employee will receive one W-2 form for each company that he or she worked for during the year. There is usually more than one copy provided so that the employee can keep the information for record keeping purposes and also submit copies to the federal and state revenue services. Employers are required to submit W-2 forms to employees by February 2nd and to the SSA by March 2nd.
Employers are required to know how to fill out W-2 forms for each employee. The W-2 form has 20 boxes that record income related information and it also includes identifying information on the employee and employer. Here are the first 10 boxes with a short explanation of the information included in each one.
- Wages, tips, and compensation – the total payment that the employee received during the year minus pre-tax contributions.
- Federal income tax withheld – any income taxes withheld from the employee’s earnings.
- Social security wages – the full amount of the employee’s income that is taxed for social security.
- Social security tax withheld – the amount of social security tax withheld from the employee’s earnings.
- Medicare wages and tips – the full amount of the employee’s wages and tips that are taxed for Medicare.
- Medicare tax withheld – the amount of Medicare tax withheld from the employee’s earnings.
- Social security tips – any tips that the employee earned.
- Allocated tips – tips that are allocated to an employee based on IRS rules for tip reporting.
- Advanced EIC (earned income credit) payment – the amount of payment advances given to the employee.
- Dependent care benefits – the amount deducted from wages for dependent related care such as day care.
W-2 forms have 10 more boxes that cover other types of income documentation. W-2 form preparation can be quite time consuming by hand. It is much easier and faster to prepare W-2 forms by using information return software.
