Employees receive the W-2 Form, also known as the Wage and Tax Statement, in order to document the amount of income and taxes withheld for a calendar year. The information on this form must be used to complete the annual income tax return.
W-2 Forms are required to be issued by employers by January 31 of each year. If the forms are mailed, they need to be postmarked by that date, not necessarily received by then.
Only employees receive the W-2. Contractors should receive income information on one of the various Form 1099s.
Taxpayers should always review the W-2 when it is received. The W-2 is also reported to the Internal Revenue Service and errors that are reported to the IRS need to be corrected. If there are errors, the employer will need to file an amended W-2.
Key Items on the W-2 Form
The first item to verify is your social security number. The IRS will match this number and the rest of the information when the return is filed. The dollar amounts on the form should be compared to the amounts on the last paystub received.
The last paystub is based on the pay date of the check (or direct deposit) not when the money is earned. If the stubs are not available, at least check the income amount for reasonableness. Although it is the employer’s responsibility to provide a correct W-2, it is the taxpayer’s responsibility to file a correct tax return.
The almost all the numbers are used, but especially important for the tax return are Box 1 – Wages, Box 2 – Federal Tax Withheld, and Boxes 5 and 6, social security and Medicare tax withheld.
Why Don’t the Income Numbers Match?
Retirement plans, medical spending and childcare spending accounts reduce the taxable income in box 1, but do not reduce social security or Medicare wages (boxes 3 and 5) so these boxes may not equal each other. State and city taxes may be based on different wages as well.
Social Security wages have a maximum limit per year. Anything over that limit ($102,000 in 2008) is not subject to tax. If the taxpayer has more than one W-2 from different employers in a year, there may be more than the limit deducted in that year. The taxpayer is eligible for a refund of social security taxes paid over that limit. Medicare wages currently have no limit.
Be sure to include a copy of the W-2 Form with paper returns, or the complete information, including employer number, with electronic returns.
Paying the right amount of federal tax is dependent on getting the right information. Each taxpayer has the responsibility of verifying the accuracy of all income and deductions, starting with the W-2 Form.
