The W2 Form: Instructions and a Detailed Explanation

By Madeleine Somerville

7 min read

If you’ve paid an employee more than $600 during a calendar year, you’ll need to issue them a W-2 form come tax time.

W-2 Form Definition

What is a W-2 form? Well, the W-2 form is a record of a worker’s employment with you, as well as the wages they were paid and state and federal tax deductions. You need to provide each of your employees with a W-2 Form by January 31 for the previous tax year (e.g. in January 2018 you will issue a W-2 form for employees who worked for you in 2017). You can file the W-2 form online or by mail.

Here are answers to a few common questions about the W-2 form.

Where do I get W-2 forms?

You can download the W-2 tax form on the IRS website. You can also order copies from the IRS or fill them online via the Social Security Administration. Additionally, QuickBooks customers can fill out and file W-2 forms online.

What’s the difference between the W-2 and W-3 forms?

W-2 and W-3 forms go hand-in-hand. A W-2 form is filled out for each individual employee. The W-3 form only needs to be filled out and filed once for each business. It totals the wages and withholdings for all employees and accompanies the W-2 form.

When do I need file the W-2 and W-3?

Both the W-2 and W-3 forms are due by January for the previous tax year. 2017 W-2’s must be filed by January 31, 2018 regardless of whether you file manually or electronically.

Do I need to file a W-2 for a contract worker?

No, but you will need to file a 1099 form. Learn more about whether a worker is an employee or contractor here.

How do I fill out a W-2 form?

Here’s a detailed explanation of the each line on the form.

W-2, Boxes a-f

These letter boxes are where you enter the information about your business and your employee so that it’s clear to the IRS who the W-2 is being issued by and who it is being issued to. Make sure employee information is correct, otherwise the form may get rejected.

W-2, Box 1: Wages, tips and other compensation

This is where you enter the total amount paid to your employee during the past tax year, including any bonuses, prizes or monetary awards.

W-2, Box 2: Federal income tax withheld

Here, enter the total amount of federal income tax withheld from this employees paychecks during the past year.

W-2, Box 3: Social security wages

Use this box to show the total wages (prior to any payroll deductions) that are subject to employee social security tax. The total amount entered in this box (Social security wages) and Box 7 (Social security tips) can not add up to more than $127,200, if it does, enter the maximum amount of $127,200.

(Pssst – Not sure how to find out the Social security wage amount? Typically, it’s the sum of Box 1 and Box 12.)

W-2, Box 4: Social Security withheld

This shows the amount of social security tax withheld from an employee’s wages. For 2017, this amount should not exceed $7,886.40 (social security wages multiplied by the social security tax rate of 6.2%).

W-2, Box 5: Medicare wages and tips

Similar to Box 3, this is where you enter the total amount of the employee’s wages subject to medicare tax. The only difference between Box 3 and this one is that here, there is no maximum amount. If your employee made $127, 200 or less for the year, the amounts entered in Box 3 and this one will be the same.

W-2, Box 6: Medicare tax withheld

Enter the total amount of Medicare tax withheld from your employee’s paychecks.

W-2, Box 7: Social security tips

If your employee earns tips, this is where you enter the dollar amount they reported to you. Typically, tip-eligible employees will provide you with a Form 4070 (Employee’s Report of Tips to Employer) on a monthly basis if they earned more than $20 of tips during that time period. Adding these up will give you a total tip amount for the year.

(Want more info about how to deal with tips? The IRS sorts you out here.)

W-2, Box 8: Allocated tips

You likely won’t have to fill in this box, but in some rare cases employers allocate tips to their employees. This most often happens if an employee hasn’t reported tips, or has reported tip amounts of less than 8% of their total receipts. This IRS document gives a more in-depth explanation, but as long as your total tips are above the 8% threshold, you should be fine.

W-2, Box 9: Verification code

You can probably skip this one too, unless you’re participating in the Verification Code Initiative in which case you should enter your verification code here. If you aren’t participating, or if you have no idea what a Verification Code Initiative is, you’re not alone! Move on to Box 10.

W-2, Box 10: Dependant care benefits

This Box doesn’t apply to you unless you provided a daycare program or cafeteria plan to your employees. (If you did, enter the total benefits you paid or incurred.)

W-2, Box 11: Nonqualified plans

This box is used to report back pay, and most likely won’t apply to you. If you think it might, you can dive into an in-depth explanation about back pay and how to report it here.

W-2, Box 12a, 12b, 12c, and 12d: Codes

There are dozens of lettered codes you can use to enter amounts in the 12-series of boxes, from Nontaxable Combat Pay to Adoption benefits. A full list of codes can be found on pages 18-20 of the IRS W-2 tax guide here. If these codes apply to your employee, enter the code letter and the amount in Box 12a. If more than one code applies, continue entering the code’s letter and amount in 12 b, 12 c and so on.

W-2, Box 13: Checkboxes

Finally something simple! Just check any boxes that apply to your employee.

W-2, Box 14: Other

If there’s any other tax or income information you wish you provide to your employee (union dues, for example, or educational assistance payments) you can enter it here. Otherwise, just leave it blank.

W-2, Box 15: State, Employer’s State ID number

Now for some more easy stuff! Enter your state’s two-letter abbreviation and the unique ID number assigned to your business. If you operate in more than one state, you can enter an additional state in the bottom portion below the dotted line.

W-2, Box 16: State wages and tips

Here, enter the total amount of taxable income earned by your employee. If your employee worked for you in two different states, enter each amount on the line corresponding the the state you identified in Box 15 (e.g. if you entered North Carolina above the dotted line in Box 15 and South Carolina below, here you would enter the amount your employee earned in North Carolina above the dotted line, followed by the amount they earned in South Carolina under the dotted line).

W-2, Box 17: State income tax

Box 2 recorded the amount of Federal income tax withheld from your employees wages, Box 17 asks you to do the same for state income tax. Again, use the dotted line to separate different state amounts where applicable.

W-2, Box 18: Local wages, tips, etc.

Here you enter the employee’s total taxable income that may be subject to city taxes, or other state taxes.

W-2, Box 19: Local income tax

There are 14 states that charge local income tax on top of state tax: Alabama, Colorado, Delaware, Indiana, Kentucky, Maryland, Michigan, Missouri, New Jersey, New York, Ohio, Oregon, Pennsylvania, and West Virginia.

If your business operates in one of these states, enter the amount of local income tax withheld, otherwise you can leave it blank.

W-2, Box 20: Locality name

Enter the name of the locale where these taxes are being paid (e.g. Kentucky).

A W-2 Form may seem complicated initially, but if you break it down box by box like we just did you’ll see that it’s really just a way to report to the government how much you paid to your employee, how much you paid to the government on their behalf in the form of taxes, and why each payment was made.

And we promise, once you’ve done a few, the W-2 form will seem as easy as pie, especially if you have software like QuickBooks doing most of the work for you.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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