Every year as soon as the tax season arrives, Americans have to hustle to ensure that all forms are filled correctly, and they’re good to go for filing their tax returns.
Business owners and corporations are hustling to update their accounting statements and financials or hiring tax professionals to take care of everything. Individual taxpayers are also approaching the tax accountants to help them file tax returns without any hassle.
Businesses and individuals are approaching tax accountants and professionals because not everyone understands the complicated format of tax forms and the details of different columns.
Tax professionals and accountants can help you file the tax return box by box and Form by Form. Otherwise, accounting software like TurboTax, HRBlock, etc., are there to help individuals easily file their returns.
Understanding tax forms can be inevitable for the second type of tax filers. Therefore, we have written this article to help the employed taxpayers to understand Form W-2, the essential Form required during tax season.
Besides, many people have questions about the Box D of Form W-2. We will ensure that we help you understand Form W-2 and Box D of the Form and its purpose.
So let’s get into it.
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.
An employer is required to make six copies of Form W-2. Seems a lot?
Wondering what the purpose of 6 copies is?
Here are the details of six copies prepared by an employer:
Copy A: Employer will e-file or mail the copy A to the SSA (Social Security Administration) together with Form W-3
Copy B: The employer will send Copy B to his employee, and the employee will attach the copy with Federal Income Tax Return.
Copy C: Copy C is also to be sent to the employee for his own records
Copy D: Copy D will be kept by the employer for business record
Copy 1: If there is a requirement for a state, city, or local tax return, Copy 1 is sent to the concerned department
Copy 2: Copy 2 has to be sent to the employee for filing state, local, or city tax return
Understanding Form W-2
We have understood what Form W-2 is, the information it contains, and copies to be created by the employer. However, it’s also important to understand the format and description of different sections within Form W-2. So let’s get into it for your understanding.
On the left side of Form W-2 are different boxes labeled with alphabets from A to F. Let’s briefly describe each box on the left side of Form W-2.
It contains the Social Security Number(SSN) of the employee. Since your employer has to fill the Form W-2, you should double-check that the number entered in box A is correct. 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. IRS requires an EIN number to identify the taxpayers who are supposed to file several business tax returns.
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 C on the left side of Form W-2 contains the employer’s address.
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. Don’t get overwhelmed to see a blank Box D because, in that case, your employer might not be using any control numbers.
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.
As we move to the right side of Form W-2, there are numbered boxes containing numbering from 1 to 12. Here is a short description of every numbered box:
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.
There is no information about pre-tax benefits like saving contributions to the 401(k) plan or 403(b) plan. 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. The number recorded in Box 2 is also reported in Line 62 of Form 1040, Line 36 of Form 1040A, and Line 7 of Form 1040EZ.
Box 3 has information like 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.
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.
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.
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.
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.
Any deferred compensation or other compensations are recorded in Box 12 of Form W-2.
What Is Box D, and Where is It Located?
Now back to Box D as it relates to the control number issued by your employer’s payroll department. Box D is dedicated to recording the control number, but the location might be different as the employer might be printing the Form from different sources.
The purpose of Box-D is to the identification of your W-2 Form using the unique control number. Your employer’s payroll software issues the unique control number.
The control number recorded in Box D might not be mandatory, and its presence will not impact the accuracy of recorded data.
We have tried to give a detailed description of your Form W-2. We have also discussed what is Box D on Form W-2 and what is its purpose.
You should know that filling Box D is not a mandatory requirement. It is filled by the employer and submitted by the employee for federal, state, or local tax returns.