If you have not already started receiving W-2 inquiries, rest assured they are coming!
Employees will be searching for their W-2 to prepare for 2017 tax returns. Others may need a little education on the form and what each section means. To proactively address potential concerns and questions, consider sharing the information below with your employees. Tweak the communication to include any specific information pertinent to your organization.
What is a W-2?
The IRS requires all employers to complete a Form W-2 annually for every employee to report taxable wages to the government. Employees are issued three copies to process their tax returns for that year and to keep for their records. Employees should receive the Form W-2 from each employer they’ve had that year. A copy is filed with the Social Security Administration by the employer, as well as with the state and local governments when necessary.
Who receives a Form W-2?
Any employee who has taxable wages paid in the tax year.
What should I do if my Form W-2 is incorrect?
If your personal information, such as your address, name, or social security number is incorrect, contact your employer. You may need a new Form W-2 issued.
If you believe your wages reported are incorrect, contact your payroll manager or payroll provider. Keep in mind that your Form W-2 wages may not match your salary or gross wages for many reasons, such as pre-tax 401(k) deductions or pre-tax benefit deductions under a Section 125 plan. Because 401(k) deductions are taxable for Social Security and Medicare taxes, but not federal income taxes, boxes 1, 3, and 5 on your Form W-2 may differ.
If you believe your tax withholding is incorrect, review your W-4 elections for the year in question. Payroll taxes are calculated using an IRS-provided method that factors in your marital status and Form W-4 elected allowances. If taxes are under- or over-withheld, it may be due to your elections. You can update your Form W-4 allowances at any time by filling out a new copy and providing it to your employer.
When will I receive my Form W-2?
Employers are required to furnish employees with their Form W-2 by January 31st following the end of the taxable year.
What if I do not receive my Form W-2 by the deadline?
If you do not receive your Form W-2 by January 31st, you should contact your employer or payroll provider. They will confirm they have your correct address on file and assist you in obtaining a copy.
How do I read my Form W-2?
Below is a map of Form W-2 data in commonly used boxes.
Boxes a, e, & f:
These boxes contain your Social Security number, name, and address. Check to confirm this information is correct on your Form W-2. Incorrect information can cause problems with allocating wages and taxes to your Social Security number.
If any of these items are not up-to-date, please contact the employer that issued the Form W-2. If the name or Social Security number needs to be corrected, you should receive a new Form W-2.
This box represents your wages that are subject to federal income tax withholding. This includes taxable pay such as salary, overtime pay, tips, and taxable fringe benefits.
Often, your taxable wages will not match your gross wages because of pre-tax deductions that may reduce the amount of taxable wages. For example, Section 125 deductions under a qualified cafeteria plan or 401(k) plans may allow you to use pre-taxed income to pay for premiums which would reduce your taxable wages.
This box displays the total amount of federal income tax deducted from your paychecks by your employer. Your employer is responsible for remitting these taxes to the appropriate government agency after withholding.
The Form W-4, which you filed with your employer, determines the amount withheld from each check. If you want to change your withholding amount, fill out a new Form W-4 and submit it to your employer. Supplemental pay, such as bonuses and commissions, may be taxed at the percentage rate allowable by the IRS.
Boxes 3 & 5:
These boxes represent taxable wages for Social Security tax and Medicare tax, respectively.
These boxes are often different from your box 1 earnings due to retirement deductions under qualified plans. These retirement deductions are not taxable for federal income tax, but are taxable for Social Security and Medicare taxes. Often, this means your box 1 wages may be lower than your box 3 or box 5 earnings. Qualified Section 125 deductions also reduce the taxable wages in these boxes.
Additionally, Social Security tax has a wage base limit of $127,200 for 2017. Only $127,200 of taxable wages paid to an employee are eligible to be taxed for Social Security. Box 3 wages should not be higher than this amount.
Medicare tax does not have a wage base. However, the percentage of wages that an employee contributes to Medicare tax increases once taxable wages reach $200,000 for the year.
Boxes 4 & 6:
These boxes disclose the total amount of Social Security tax and Medicare tax, respectively, deducted throughout the year.
This box reports different types of pay and deductions that the IRS requires on the Form W-2. Any taxable wages are also included in boxes 1, 3, and 5.
The following are commonly used codes that may appear in this box:
- Code C: Taxable Cost of Group-Term Life Insurance
The taxable amount of group term life insurance included in your wages throughout the year. Life insurance over $50,000, provided by the employer, is taxable. The amount included in your income is calculated using the amount of coverage and your age as of December 31st of that year.
- Code D: Elective Deferrals under a Section 401(k) Cash or Deferred Arrangement (Plan)
The 401(k) deductions taken from your check throughout the year. This will not be included in box 1, but is included as wages in boxes 3 and 5. State law determines if 401(k) contributions are included in your state taxable wages.
- Code W: Contributions to a Health Savings Account (HSA)
The amount you and your employer contributed to your HSA through a Section 125 plan.
- Code AA: Designated Roth Contributions under a Section 401(k) Plan
The amount of Roth 401(k) deductions from an employee’s pay, which is taxable in all boxes as a post-tax deduction.
- Code DD: Cost of Employer-Sponsored Health Coverage
The cost of employer-sponsored health coverage throughout the year. Currently, this is used to meet reporting guidelines under the Affordable Care Act Tax Provisions, and is not taxable.
An employer can add amounts for informational purposes into this box. It does not affect taxes or wages.
This box contains taxable wages reported to the applicable state. If you were taxed in multiple states, multiple states may be represented here, with the taxable amount in each state shown.
This box represents the amount deducted for each state’s taxes. If you were taxed in multiple states, it will be represented here.
This box will show wages taxable to a local entity. This may be a city or county tax for your residence or worksite location.
This box will represent the local taxes withheld from your check for each entity.
This box will show the name of the local entity for which your tax was withheld.
Tandem HR, a Chicago area PEO, provides payroll processing and payroll tax support to small and mid-sized companies. Tandem HR also helps clients save time and money while growing their business by taking on the administrative tasks associated with human resources, benefits, payroll, tax administration, regulatory compliance and risk management. Call 630.928.0510 for more information today.
Contributed by Erika Kropp Gendusa, CPP, Payroll Specialist at Tandem HR