There has never been a more welcomed term in the adult
taxpayer's life, than the invention of the W-2 and January 31st;
let's take a moment to examine the W-2, and what it really means
to the average taxpayer. What information is found on the W-2,
how do we provide the information for the W-2 and who is
responsible for providing the W-2?
There are 20 "boxes" of information found on the W-2, and all
pertain to the varying forms of compensation you may have
received as an employee. Boxes 1 thru 14 deal with employee
compensation on a federal level; boxes 15-20 pertain to income
and any state liability due. Wages, tips, and compensation,
federal tax withheld, social security wages, social security tax
withheld, and the information for Medicare all relate to your
federal tax liability. Boxes 7 and 8 have to do with receiving
tip income, and the amount of the income that is eligible for
social security tax.
Boxes 9 and 10 are for earned income credit advance payments,
and any form of dependent care benefits you may have received,
that are taxable income. Boxes 11 -14 are for retirement plan
income deductions; pre-tax contributions such as to 401(k)s,
SEPs, IRAs, MSAs, and HSAs, would fall into this category, and
any contributions made that are pre-tax contributions would be
shown here.
Boxes 15-20 are for reporting earned income as it applies to
your individual state, or the state in which you worked. Quite
often, taxpayers reside in one state, and work in another. If
this is the case, when you complete your tax return for the
year, you will file a return for the state in which you reside,
and the state in which you worked, as a non-resident filer.
When you receive your W-2, you normally receive 4 copies; one
for your federal tax return, one for a state return, one for an
additional state that may or may not be needed, and one for you
to keep for your records.
There are additional boxes shown on the W-2 that are
alphabetically identified, as a thru f. These boxes contain
information about the recipient and the company issuing the W-2.
Your social security number, your address, and your employee
number if you've been assigned one. These boxes are also for
your employer information, their federal identification number,
their address, and telephone number is usually also listed.
What items may be included in your wages, tips, and
compensation? Believe it or not, it can include more than just
your income from your weekly check. Any benefits received as
bonuses, prizes, awards, and noncash payments may be included in
your wage and income information. If you receive payments from
taxable benefits of a section 125 cafeteria plan, (if you choose
cash payment) will be shown as wage income. Employer paid
contributions for qualified long-term care services to the
extent that the contributions are flexible and controlled in
part by the employee are taxable. Employer paid child care
services are also included as income to the employee.
When it comes to deferred payments, pre-tax and after tax
contributions to a 401(k), an IRA, a ROTH IRA, or an HAS, some
of the benefits and contributions made by your employer may or
may not be included as taxable income, and must be included as
other compensation. Quite often, income included in this manner
won't be subject to federal withholding, but will be subject to
social security and Medicare taxes, so it there fore must be
included for those taxes to be properly computed.
Currently, there is no cap on Medicare tax in relation to the
level of income reported; with social security, the limit is the
first $94,200 of earned income is taxable, anything above that
amount, is not. It should also be noted here, that any advance
EIC payments, or advance earned income payments should not be
taxed with federal withholding, Medicare, or social security.
About the author:
Tony Robinson is a Webmaster and International Author. Visit
http://www.tax-portal.com/ for his tax tips.
