The Nitty-Gritty of the W-2 Form
Employers use the W-2 form for reporting withholding and insurance requirements for employees. The threshold for issuing a W-2 is based on dollars and nothing else: the magic number is $600. If you paid at least $600 cash — including taxable benefits — you must issue a W-2 form. If any taxes have been withheld, including those for Social Security and Medicare, as well as taxpayer information, a W-2 form must be issued. The right side is used for financials and codes; the left side is for reporting taxpayer information. The bottom reports local and state tax information. Let's look at each box on the left:
- Box a – The employee's Social Security number.
- Box b – Your EIN.
- Box c – Your legal address.
- Box d – A control number used by payroll. Can be left blank if you don't use one.
- Box e – The employee's full name — the same name that appears on the employee's Social Security card.
- Box f – the employee's mailing address.
Boxes on the right:
- Box 1 – The employee's total taxable wages, tips, prizes and other compensation, as well as any taxable fringe benefits or payroll deductions.
- Box 2 – The employee's total federal income taxes withheld for the year. The amount is based on the employee's exemptions and any additional withholding.
- Box 3 – Total wages subject to the Social Security tax. You calculate this before any payroll deductions — this is why the amount in Box 3 could be different from the number in Box 1.
- Box 4 – Total Social Security taxes withheld for the year. Unlike federal income taxes, Social Security taxes are calculated based on a flat rate of 6.2 percent. The amount in Box 4 should be equal to the number in Box 3 multiplied by .062.
- Box 5 – The amount of the employee's wages subject to Medicare taxes. Medicare taxes generally don't include pretax deductions and will include most taxable benefits. Unlike Social Security wages, there's no cap for Medicare taxes, so the figure in Box 5 may be larger than the amounts shown in Box 1 or Box 3.
- Box 6 – The amount of Medicare taxes withheld for the year. Like Social Security taxes, Medicare taxes are figured based on a flat rate, which is 1.45 percent. The figure in Box 6 is equal to the number in Box 5 multiplied by .0145. Since 2013, a new law kicked in stipulating that you must withhold additional Medicare tax of 0.9 percent from wages that you paid to any individual earning more than $200,000, regardless of filing status or wages paid by another employer.
- Box 7 – Tips that may have been reported by the employee.
- Box 8 – Allocated tips that are attributable to this particular employee.
- Box 9 – Like leaving a spot at the table for Elijah the Prophet at the Passover Seder — it's still on the W-2 form even though the reporting requirement expired a few years ago.
- Box 10 – The total of any benefits that you paid on your employee's behalf under a dependent care assistance program. If less than $5,000, they're nontaxable. If greater than the $5,000 exclusion, the excess is reported in boxes 1, 3 and 5.
- Box 11 – Used to report amounts that you've distributed to the employee from your nonqualified deferred compensated plan. This amount is taxable.
- Box 12 – The kitchen sink of form W-2 reporting, and it is reported according to codes:
A – Uncollected Social Security or RRTA tax on tips.
B – Uncollected Medicare tax on tips (but not additional Medicare tax).
C – Taxable cost of group-term life insurance that's more than $50,000, which is included in wages at boxes 1, 3 and 5.
D – Elective deferrals to a section 401(k) cash or deferred arrangement plan, including a SIMPLE 401(k) arrangement.
F – Elective deferrals under a section 408(k)(6) salary reduction SEP.
G – Elective deferrals and employer contributions, including nonelective deferrals to a section 457(b) deferred compensation plan.
H – Elective deferrals to a section 501(c)18(d) tax-exempt organization plan.
J – Nontaxable sick pay.
K – 20 percent excise tax on excess golden parachute.
L – Substantial employee business expense reimbursements.
M – Uncollected Social Security or RRTA tax on taxable cost of group-term life insurance over $50,000 (for former employees only).
N – Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000 but not additional Medicare tax (for former employees only).
P – Excludable moving expense reimbursements paid directly to employee.
Q – Nontaxable combat pay.
R – Your contributions to an Archer MSA.
S – Employee salary reduction contributions under a section 408(p) SIMPLE plan.
T – Adoption benefits.
V – Income from exercise of nonstatutory stock option(s).
W – Employer contributions (including employee contributions through a cafeteria plan) to an employee's health savings account.
Y – Deferrals under a section 409A nonqualified deferred compensation plan.
Z – Income under a nonqualified deferred compensation plan that fails to satisfy section 409A.
AA – Designated Roth contributions under a section 401(k) plan.
BB – Designated Roth contributions under a section 403(b) plan.
CC – HIRE exempt wages and tips.
DD – Cost of employer-sponsored health coverage.
EE – Designated Roth contributions under a governmental section 457(b) plan.
- Box 13 – A series of three boxes in which you check the applicable box if the employee has earnings subject to Social Security and Medicare taxes but not federal income tax withholding — in other words, for a statutory employee. You'll check another box if the employee participated in your retirement plan during the year and yet one more if the employee received sick pay under your third-party insurance policy.
- Box 14 – Another catchall box to report anything that doesn't fit anywhere else. Examples include state disability insurance taxes withheld, union dues, health insurance premiums deducted and nontaxable income.
- Box 15 – Your state and state tax identification number.
- Box 16 – Taxable wages for state tax purposes.
- Box 17 – The total amount of state income taxes withheld during the year.
- Box 18 – Local, city or other state income taxes.
- Box 19 – Wages subject to local, city or other state income taxes.
- Box 20 – Holds no surprises; simply the name of the local, city or other state tax being reported.
Is any of this confusing? Give us a call and we'll help you figure out how to issue W-2 forms for your employees--and make sure you are up-to-date with the latest deadline rules.