Tax Form Basics: Understanding Your W-2

Chances are, you’ve already heard of the W-2 form. Annually, this form is issued by an employer to an employee and shows the employee’s total gross earnings. And if you’re planning to file your taxes, you’re going to need one.

Curious about what the W-2 form really entails and the role it plays with your earnings? Here’s what to know before you file.

What Is a W-2?

A W-2 (a.k.a. the Wage and Tax Statement) reports an employee’s annual wages and the amount of taxes withheld from their paychecks.

Every year, employers are legally required to send out W-2 forms to all employees earning a salary, wage, or any other form of compensation. Basically, this all-encompassing form shows an individual’s total gross earnings.

The IRS requires your employer to report overall wage and salary information through your W-2. It also includes the amount of federal, state, and all other taxes withheld from your paycheck. For employees, the information on the W-2 is by far one of the most important parts of preparing for a tax return.  

So make sure you save this paperwork!

Why Is the W-2 Form Important?

Simply put, you need your W-2 to do your taxes. A W-2 form analyzes an employee’s salary information. Ultimately, it determines if the employee will have to pay additional taxes or receive an income tax refund, based on earnings throughout the previous year. In turn, these forms are a critical part of most people’s tax season preparation process–and the IRS will expect them.

Luckily, dealing with your W-2 is usually pretty simple. Unlike most tax forms, very little has to be done with a W-2. You simply receive it from your employer and apply it accordingly.

As noted by the Motley Fool, “you can expect a W-2 form if you’re an employee and you earned $600 or more or had any amount withheld.” For those working as independent contractors, you will likely receive a 1099 form instead of a W-2, assuming you made more than $600 during the year.

Those who are self-employed typically make out-of-pocket tax payments throughout the year. Those employed by a business will be making regular tax payments throughout the year as well, but in a different way. Employee taxes are withheld from each paycheck and sent to the IRS.

Read More: 1099 Forms: What Self-Employed, Private Contractors Should Know About Their Taxes

Your W-2 details how much was withheld for income taxes, Social Security, and Medicare. Once you have calculated your total tax due for the tax year, you subtract how much has already been paid to the IRS. You’ll either end up owing taxes or you may qualify for a refund for over-payment.

This is one of the most crucial reasons to care about your W-2 form. To calculate if you’re owed a tax refund check and how much, your W-2 will be needed.

What’s on The Form?

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The W-2 form contains a lot of important information, but it’s mostly basic stuff that’s easy to understand even if you don’t have an accounting degree. You will be expected to include the following:

  • Your name and mailing address
  • Your Social Security number
  • The Employer Identification Number
  • Total taxable wages or payments earned over the past year
  • Federal taxes withheld throughout the year
  • State and/or local tax withheld
  • Medicare and Social Security taxes withheld

How to Get Your W-2

The IRS requires employers to send out W-2s in the mail by Jan. 31 or they’ll face major penalties. By the first week in February, it should show up in your mailbox. Employers are also allowed to send employees their W-2 forms electronically, but this method is not required. You might be able to request that yours be sent online, so check with your employer to see what W-2 options they offer.

If you quit your job, you’ll likely still be waiting until the general time period to receive your W-2. Employers aren’t required to send them out any earlier than Jan. 31. However, you can ask for it earlier if you’ve left a job, and your former employer will be given 30 days to provide it.

Looking for a copy of an old W-2? You should request an IRS tax transcript online or use IRS Form 4506 to request a copy of your tax return.

Before you do that, talk to your employer. If your W-2 hasn’t shown up by early February, ask your employer for a copy and make sure the address is correct. Most times, your employer will contact HR or tell you how to access your W-2 online through the HR department or payroll processor.

If none of this works, it’s time to call the IRS and provide information about the period of time worked and estimate how much you were paid. But hopefully, you’ll be able to sort it out with your employer.

Do note: the IRS may require you to file a 4852 form with your tax return if you cannot get your W-2 from your employer. This form will serve as a substitute.

What If You Don’t Have Your W-2 by Tax Day?

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No matter what, your tax return is still due by the filing deadline. If things don’t go as planned and you find yourself without your W-2, you may have to estimate your earnings and withholdings to make sure you get everything in on time.

It’s also possible to get an extension, and there are many resources online available to help with the process.

While the IRS works to verify your information without all the necessary paperwork, there’s a chance that the IRS will delay processing your return and your refund. If your W-2 eventually shows up once you’ve already filed your tax return, you may be required to go back in and amend your tax return to make sure everything is exactly right.

Per NerdWallet, “an amended tax return corrects mistakes on a federal tax return. Taxpayers use IRS Form 1040X to file an amended return.” To check the status of your amended tax return, go to the IRS website.

Other Important Details on The W-2

W-2s reveal more than just what you were paid. They show everything taken out, withheld, or rightfully due to you later on.

These important forms detail how much you contributed to your retirement plan throughout the year, how much your employer paid for your health insurance, what you received in regards to dependent care benefits, and how much it all adds up to.

Obviously, it is always a good idea to understand exactly what’s being withheld and why. Going over each section of your W-2 carefully can help you develop a fuller grasp of what your refund may look like, how much you may owe, and any important areas pertaining to your return that you might be overlooking.

With this in mind, getting your W-2 details as close to correct as possible is important. Errors, on the other hand, could lead to lengthy delays while the IRS attempts to sort everything out and verify the information.

What if Some Details Are Wrong?

Mistakes happen. But don’t worry–fixing your W-2 or righting any wrongs is possible. Also, if the error was on the part of your employer, they will wind up being the one hit with penalties in most cases, not you.

Per NerdWallet, “if your employer leaves out a decimal point, gets your name or a dollar amount wrong, or checks the wrong box, point out the mistake and ask for a corrected W-2.”

Unfortunately, pointing out the error will cause you to lose time and wait for your return a little longer, but it’s better to be safe than sorry. Again, the IRS may fine your employer for “significant item” errors. These errors include things like incorrect dollar amounts or an incorrect line in your address.

Go over the information you’ve filled out in advance. Make sure everything is in its right place long before tax time. With your W-2, you should always review and cross-check the information before it’s submitted to the Social Security Administration. It’ll save the most time in the long run. 

When in Doubt, Look Into Tax Software

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Taxes can be confusing. Luckily, your W-2 is one of the easiest forms to work through on your own, but help exists if and when you need it.

When it comes to your taxes, you don’t have to go through the process alone. There are plenty of services that are worth every penny. Even better, a few of them are completely free for those with simple tax tasks, like W-2 filing.

TurboTax, H&R Block Free, Tax Act, and Tax Slayer all come highly recommended. They all offer different tax packages catered to different taxpayer situations. There’s no time like the present to do some browsing and find the online tax service most suited to your needs.

With that said, if you don’t have a crazy or complex tax situation (and if all of your income comes from your job), you may not need tax software at all. Still, a little help never hurts. If this sounds more like you but you’re still not sure, look into H&R Block Free.

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