What it is:
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.
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.