September 15, 2020

How to read your W-2 Form

How to read your W-2 Form

This is a guide on how to read your W-2 form. Preparing W-2 forms for filing with the Social Security Administration can be tricky. This article will help:

  1. Employer seeking to fill out the forms correctly.
  2. Employees trying to understand the numbers reported on their W-2. It will also help employees understand how to fill their income tax forms (1040 tax returns).

What do the codes in Box 12 on my W-2 mean?

This is a comprehensive guide to all the codes in Box 12 of Form W-2. Check it out.

In this guide on how to read your W-2 form, what information goes to which box?

To follow this guide carefully, please download a copy of Form W-2 and either print it or have it where you can easily refer to it. Then follow along:

Box 1 - Wages - also referred to as income. It also includes reported tips, bonuses and other taxable compensation. Taxable fringe benefits are also included here, but pre-tax benefits such as 401(k) and health insurance plans are excluded. The amount in this box goes to line 1 of Form 1040 tax return.

Box 2 - Federal Income Tax withheld from your paychecks throughout the year. This amount is reported on line 17 of form 1040 tax return from 2019 and later.

Box 3 - Total wages subject to Social Security Tax. Exclude all reported tips since they go to box 7.

Box 4 - Amount of Social Security taxes withheld from your paychecks.

Box 5 - Amount of wages subject to Medicare tax. There is no maximum wage base subject to Medicare. 

Box 6 - Amount of Medicare taxes withheld from your paychecks. This amount includes the 1.45% Medicare Tax withheld on all Medicare wages and tips shown in box 5, as well as the 0.9% additional Medicare tax on any of those Medicare wages and tips above $200,000. You may be required to report this amount on Form 8959, Additional Medicare Tax. See the Form 1040 instructions to determine if you are required to complete Form 8959.

Box 7 - Amount of tip income you've reported to your employer. It will be empty if you didn't report any tips. Box 7 and Box 3 should add up to the amount that appears in Box 1 if you don't have any pre-tax benefits, or it might be equal to the amount in Box 5 if you do receive pre-tax benefits. The total of Boxes 7 and Box 3 should not exceed the Social Security wage base. The amount from Box 7 is already included in Box 1.

Box 8 - Amount of tip allocated to you by your your employer. This amount is not included in the wages that are reported in Boxes 1, 3, 5, or 7.

You must file Form 4137, Social Security and Medicare Tax on Unreported Tip Income, with your income tax return to report at least the allocated tip amount unless you can prove that you received a smaller amount. If you have records that show the actual amount of tips you received, report that amount even if it is more or less than the allocated tips.

On Form 4137 you will calculate the social security and Medicare tax owed on the allocated tips shown on your Form(s) W-2 that you must report as income and on other tips you did not report to your employer. By filing Form 4137, your social security tips will be credited to your social security record (used to figure your benefits).

Box 9 - Was used to report the amount of advance earned income credit to low income earners. This was phased out in 2011, and therefore should be left blank.

Box 10 - This amount includes the total dependent care benefits that your employer paid to you or incurred on your behalf (including amounts from a section 125 (cafeteria) plan). Any amount over $5,000 is also included in box 1. Complete Form 2441, Child and Dependent Care Expenses, to compute any taxable and nontaxable amounts.

Box 11 - This amount is either:

a. A distribution made to you from a non-qualified deferred compensation or nongovernmental section 457(b) plan. Is is also included in Box 1. 

b. A prior year deferral under a non-qualified or section 457(b) plan that became taxable for Social Security and Medicare taxes this year because there is no longer a substantial risk of forfeiture of your right to the deferred amount. It is also included in box 3 and/or 5.

This box should not be used if you had a deferral and a distribution in the same calendar year. If you made a deferral and received a distribution in the same calendar year, and you are or will be age 62 by the end of the calendar year, your employer should file Form SSA-131, Employer Report of Special Wage Payments, with the Social Security Administration and give you a copy.

Box 12 - Is for the different types of deferred compensation and other types of compensation. See section below for all the possible codes for box 12.

Box 13 - Has 3 check boxes as follows:

a. Statutory Employee - If this box checked, you should report your wages on Schedule C of your tax return (Form 1040). Statutory employees are not subject to income tax, but are subject to Social Security and Medicare taxes. Boxes 3 to 6 should not be left blank. 

b. Retirement Plan - If checked, you participated in your employer's retirement plan during the year. 

c. Third-Party sick pay - This box is checked if you received sick pay from a third party instead of receiving it from your employer. Sick pay is subject to Social Security tax and Medicare even though it is not reported in Box 1.

Box 14 - Is used to report additional tax information such as state and local taxes ( eg SDI Tax), after-tax contributions to a retirement plan, employer-paid tuition assistance, union dues, fair-market value of employer provided housing etc. The names of these items should be descriptive enough. 

Box 15 - Is used for your employer's state withholding tax identification number.

Box 16 - Is used for your wages, earned in the particular state, that are subject to state withholding tax.

Box 17 - Is used to report the amount of state income taxes withheld from your paychecks.

Box 18 - Is used for your wages, earned in the particular state, that are subject to local or other state income taxes.

Box 19 - Is used to report the amount of local or other state income taxes withheld from your paychecks.

Box 20 - Is used to identify the type of local tax in Box 19. 

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What do the codes in Box 12 on my W-2 mean?

Felix Mwania

I live in the intersection of technology and entrepreneurship. I am a technology enthusiast but my passion is helping small businesses succeed, including mine. When I am not working, you will find me goofing with my wife and kids. When not with family and/or friends, you will find me doing some home improvement projects.

Felix Mwania


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