W-2 Form Explained: How to Read a W-2

If you have done your taxes, you probably have heard of the W-2 forms, but they can be so complicated in some situations. Here is a guide on how to read a W-2.

Every January, your employer sends you a new W-2 form. This form is important (you can’t file your tax returns without it), but it can also be a little scary.

What do all those boxes and numbers mean?

If you’re stressing over your W-2 form, take a deep breath. We’ve put together this guide to teach you how to read a W-2 form the right way. Let’s get started!

Important Terms on Your W-2

Before you start de-coding your W-2, there are two important terms you need to understand: gross pay and net pay. If you mix these terms up, you’ll find yourself getting confused and maybe even alarmed as you read through your form.

Here’s a quick definition of these terms and the difference between the two.

Gross Pay

Gross pay is the total amount of money you’ve made during the year. This includes things like your wage, bonuses, tips, etc.

However, this is the amount you’ve made before any federal income tax has been taken away. So this number is bigger than the actual amount of money you get to keep.

Net Pay

Net pay is the total amount of money you get to take home after the necessary tax has been subtracted from it. Because of this, your net pay will be lower than your gross pay.

Don’t let this worry you. It is normal.

However, it’s important to remember that, although it’s exciting to see your gross pay, you don’t get to keep all that money. Instead, the net pay is the amount that goes to you.

How to Read a W-2 Form the Right Way

There are a bunch of little boxes on your W-2 form, but don’t let them overwhelm you. Once you know what each box means, reading your W-2 form is a simple process.

We’ve put together this guide to walk you through the process.

Box 1

This box documents your gross pay. The amount in this box shows your taxable income.

Box 2

The number in this box is the amount of federal income tax your employer withheld from your pay.

Box 3

Box 3 shows you how much of your gross pay is subject to Social Security tax. This won’t be the full amount of your pay, which is why the number is smaller than your total gross income.

Box 4

Now that you know how much of your income was subject to Social Security tax, this box shows how much of this tax was subtracted from your gross pay.

Box 5

Similar to box 3, this box shows you how much of your total gross pay is subject to Medicare tax. Again, this won’t be the full amount of your gross income.

Box 6

The number in this box is the amount of Medicare tax that was taken away from your gross pay.

Box 7

If you made any tips during your work, this box shows the total amount of these tips. However, this only documents the tips you reported. If you didn’t report any tips (or if you didn’t make any tips), this box will be empty.

Box 8

If your employer distributed any other tips to you, the total amount of these tips is listed in this box. This number isn’t included in your total gross pay (unlike the tips you’ve reported).

Box 9

This box will be empty on your W-2. It used to describe another tax perk, but that rule isn’t used anymore. So you don’t have to worry about box 9!

Box 10

Your employer might give you dependent care benefits. However, if you don’t have any of these benefits, this box will be empty as well.

Box 11

Your employer will also have a deferred compensation plan. This box shows how much money you were given by your employer through this plan.

Box 12

Box 12 is separated into four different sections. Each of these sections is used to detail other deductions taken from your gross pay. This might include things like 401(k).

Box 13

This box has three different statements: statutory employee, retirement plan, and third-party sick pay. If any of these statements apply to you, there will be a checkmark under it.

Box 14

If there is any other type of tax withheld from your gross earnings, your employer will document it in this box.

Box 15

This box will list the state ID number of your employer.

Box 16

Box 16 shows you how much of your gross pay is subject to state income tax.

Box 17

This box documents how much state income tax was taken away from your gross income.

Box 18

You might have to pay local or city tax as well. If so, this box will show you the amount of your gross pay that’s subject to this tax.

Box 19

Box 19 lists the amount of local or city tax withheld from your gross pay.

Box 20

This box describes the type of local or city tax being withheld from your gross pay.

Filling out a W-2 Form as an Employer

Reading a W-2 form is one thing, but filling out all the right information can be even more difficult. And an incorrect W-2 form can lead to all kinds of problems later.

If you’re an employer, it can be helpful to find tools, such as a W-2 maker, that’ll ensure you’re putting the right information in the right places. This will make your job much easier in the long run.

Understanding Your W-2 Form

Knowing how to read a W-2 form is important because it gives you information about the money you’re making and the taxes you’re paying. If you find a mistake on your W-2, make sure you reach out to your employer right away so they can fix the problem.

Want to learn some other helpful finance tips?

We’ve got you covered. Take a look at the rest of our blog today!

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