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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

W-2 Form

What it is:

A W-2 form is a tax form required from employers that reports wages paid and taxes withheld to the Internal Revenue Service (IRS), local state tax authorities and the Social Security Administration.

How it works (Example):

Every calendar year, employers must fill out and deliver a W-2 form to every employee who worked for the company during the year. The W-2 form must be received by the employee by February of the following year. A copy also goes directly to the IRS.

There are 20 boxes on a W-2. They disclose wages, tips, and other compensation; federal and social security taxes withheld; wages subject to certain taxes; tips received; distributions from certain retirement or deferred compensation plans; contributions to those plans; and other benefits and payments received or paid.

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Why it Matters:

A W-2 form applies only to wages earned by those who qualify as employees. Other forms of income, for example income earned by independent contractors and dividend income, generate a 1099 form.  Taxes are automatically deducted incrementally from every pay stub for W-2 income.  Taxes are not automatically deducted from 1099 income when earned, so they must be paid in April of the following year when tax returns are filed.

For many Americans, the W-2 is the primary report for taxes, reflecting the majority of a person's income for the year.  A person can generate multiple W-2 forms in a given year as every employer and each state worked in requires a W-2.

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