Form W-2 is one of the most important and compulsory forms for the USA’s tax filers. We have already covered the Form W-2 and the content on the left and right sides of the Form W-2. You can check the article here.
In this article, we will be discussing and explaining Form W-2 from a different perspective. The information shown on the left and right sides of the form can also be segregated in the specific subject matter.
For instance, numbered boxes 1 to 6 relate to the tax filers’ income and federal taxes. Similarly, the boxes can be labeled under different information heads.
It’s true that if the tax filers know the content explained on each side of the form, they will fill the form.
But at the same time, it’s important to understand the segregation of fields to know the importance of all fields and which fields are necessary to be filled for different purposes.
Besides, we will also answer the question of many people about the locality section in Form W-2. It’s the last box on Form W-2.
What Is Form W-2?
Form W-2 is the most popular form among the employed taxpayers. Every employer involved in trade or business and paying remuneration(cash and non-cash) of $600 or more per year against the services of an employee is required to file Form W-2. IRS defines Form W-2 as a Wage and Tax Statement.
We can define Form W-2 as,
“The statement issued by an employer to the employee containing the information about the employee’s annual wages and withheld taxes from paychecks for the reporting year is called form W-2. Different parts of the form W-2 contain information like federal withholding tax, social security tax, medicare tax, state and local income taxes, and employee’s gross wages.”
Purpose of Form W-2
We have already mentioned what information is recorded in Form W-2. However, you might wonder what the purpose and use of Form W-2 are.
To argue about the purpose, it’s a mandatory requirement by IRS, and it’s required for accurate reporting of the withheld taxes and contributions as reported by the employers.
Besides the information on wages and withheld taxes, the Form W-2 also contains information like deferred compensation, contributions, tip income, dependent care benefits, etc.
The employer has to produce a total of six copies of the form: 3 for the employee(federal tax, state tax, and record purposes), one copy for sending to SSA(Social Security Administration), and one copy if state tax is required for sending to the concerned department, and one copy for his own records.
Let’s get into the information as required on the Form W-2 as per the segregation of sections:
- Personal Information of Employee
- Income and Federal Taxes
- Taxes and Tips
- Advanced Payments and Benefits
- State Taxes
We will explain each of these and also answer about the locality box in Form W-2.
1. Personal Information of Employee
Personal information like name, address, SSN, control number, etc., are filled in the boxes related to the personal information of an employee.
The boxes are named with alphabets related to the employee’s personal information. Here is a short description of each of the boxes:
It contains the Social Security Number(SSN) of the employee. In case there is an error in SSN, your tax return filing process will be subject to slow processing.
Box B contains the nine-digit employer’s EIN. EIN stands for Employer Identification Number or FTIN(Federal Tax Identification Number). EIN can be regarded as equivalent to SNN in importance.
Every business has an official address that has to be mentioned for correspondence. It’s usually the legal address mentioned in documents; the actual working address might not be the same.
Box D is an important box related to the employer’s annual wages and benefits. It contains a control number that is internal to the employer. Your employer or your payroll department issues the control number.
Box E & F
Box E and F are collectively shown on Form W-2 as a big block containing the name and address. The name and address mentioned in these boxes are of the employee. The name should be the same as reported on Social Security Card(SSA) and should be written in Box E.
Box F is dedicated to the address of the employee, and it should contain your mailing address without punctuation.
In case your name is not correct on Form W-2, you will fill the new form, and for the wrong address, the employer can change the address in his records for convenience.
Box A, E, and F are the most significant boxes that you should double-check the accuracy of.
2. Income and Federal Taxes
The next thing your employer will fill in the Form W-2 is the information related to income and withheld federal taxes.
Any wages, tips, federal tax, medicare, social security wages, tax, etc., are recorded in the number boxes from 1 to 4 and 6. The short description of each box is as follows:
It’s the first box and contains the information like taxable wages or salary of the employee, including any tips, salary, wages, etc., for federal income tax purposes.
The wages and salaries reported in Box 1 are also recorded on Line 7 of Form 1040, Form 1040A and Line 1 of Form 1040EZ.
The employer withholds taxes and reports them to the federal tax department. Box 2 has to include the net amount of withheld taxes from the employee’s paycheck.
Box 3 contains the total amount of wages subject to the Social Security Tax. The wages amount recorded in Box 3 doesn’t include the tips received by the employee.
Box 4 contains the amount of total Social Security Tax withheld in your paychecks. A flat rate of 6.3% of wages up to $118,500 is applied as a Social Security Tax.
Box 6 contains the information about the total taxes withheld under the Medicare taxes, and it’s applied as a flat rate of 1.45% on total medicare wages.
3. Taxes and Tips
Numbered boxes 5, 7, and 8 relate to the information regarding taxes and tips related to the employees working in the services industry. The tips received by employees are taxed for Social Security and Medicare purposes. The information reported in these boxes should be according to the best knowledge of the employer. You can double-check the information as an employee because it should be accurate.
The wages amount taxable for Medicare taxes is recorded in box five on the right side of Form W-2. There is no maximum wage base for Medicare taxes. Therefore, the amount recorded in the Box 5 can be different from Box 1.
Tips received in addition to the basic wages are recorded in the Box 7 of Form W-2
Box 8 is dedicated to allocated tips and records any amount the employer allocated to an employee.
4. Advanced Payments and Benefits
Advance payments or benefits received from an employer are also recorded in Form W-2. Boxes 9 to 14 represent the information regarding the advanced payments in lieu of compensation, benefits under any benefits program(retirement plan, statutory employee, sick time payments), etc.
Box 9 will remain empty as it was previously used for reporting advance of Earned Income Credit that ended in 2010.
It contains the amounts reimbursed to the employee under the head of dependent care expenses.
Any amount distributed to the employee by the employer’s non-qualified deferred compensation plan or non-government Section 457 pension plan is recorded in Box 11.
Box 12 of Form W-2 corresponds to any taxable income already taken out of the total taxable income. These items include reimbursements for work-related business expenses, 401k distributions, life insurance premiums, etc.
It has three checkboxes that have to be marked by your employer if necessary. The boxes are Statutory Employee, Retirement Plan, and Third-Party Sick Pay.
The statutory employee box will be checked if no taxes have been withheld from employees’ paycheck. Similarly, it will be checked if you have received sick pay from a company other than you’re working for. An example is receiving money from your insurance company.
It represents others. The box can be used to show information by labeling it. Union dues are an example of what can be written in others’ boxes.
5. State Taxes
Finally, the last section of Form W-2 is related to the State taxes. Here is a short description of what boxes represent the state taxes and what is to be filled.
The boxes contain information about your state taxes, state income, tips, wages, local income tax, and relevant information.
It contains the name of the state you’re working in and earning wages reported on Form W-2. If you’re an employee of a company that operates in more than one state and you’re working in different states, you might have to fill out more than 1 Form W-2.
It corresponds to state wages and tips.
Box 17 shows the amount of state tax withheld from the employee’s paychecks.
The income is the same as reported in Box 1 and Box 16. It shows the local wages and tips, etc. If your income is taxable at the locality level, the amount received as wages and tips will be taxable.
Local Income Tax is reported in box 19 and is also withheld from your paycheck and directly sent to the locality.
Box 20 (What is the Locality Name On Form W-2 Mean?)
Box 20 shows the locality name. It can be the name of the city or county you live in. Locality name corresponds to the specific local taxation district to which your local income tax has been paid. If the district mentioned in Box 19 differs from where you live, you will have to file more than one local tax (might be).
With said that, we have described Form W-2 with respect to different heads of information related to your particulars, income, taxes, benefits, state taxes, etc. We have also answered the question about what is the locality name on Form W-2 means. Another concern of many people is that :
Locality Name is blank on my W2. What do I put there?
So here’s the answer.
Nothing to be worried about if Box 20 is left blank.
Box 20 is usually left blank for the areas where communities do not pay any local income tax. If your Form W-2 has empty Box 20, but you have locality tax withheld, you can write down the state initials in the box. However, suppose your locality has a requirement of filing local tax, and Box 20 is still left blank. In that case, you can ask the local city tax department for locality information and fill out the form accordingly.