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What's a W-2? Wage and Tax Statement Explained

December 26, 2023

Form W-2 is one of the most important tax documents for both employers and employees. Here's what they include and how they work.

  • Reviewed by Paylocity's Compliance & Government Relations Team
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What's Form W-2?

Form W-2 (a.k.a. Wage and Tax Statement) is a tax document created by the Internal Revenue Service that reports United States wages paid to employees and taxes withheld for the calendar year, including all withheld Federal Insurance Contributions Act (FICA) Taxes. It can also include other payroll deductions applied to an employee's gross income, like 401(k) or health savings account contributions.

Created as part of the Current Tax Payment Act of 1943, employers submit the form every year to the Social Security Administration (SSA) and distribute copies to all employees except for independently contracted employees.   

Key Takeaways

  • Form W-2 reports the annual wages paid to an employee and the taxes withheld from those wages
  • The form also reports voluntary deductions, like 401(k) or HSA contributions
  • It is filed by employers to the SSA and distributed among employees every year

W-2 Responsibilities for Employers

Employers must complete several tasks related to Form W-2:

  1. Send copies to individual employees. Employers are required to send a copy of a completed W-2 to the corresponding employee no later than January 31. If this date falls on a weekend, the deadline for that year will be the next available business day.
  2. Notify employees when their W-2 will be available. Given the impact the form has on each employee's own tax return, it's generally a good idea to inform employees when their W-2s will be ready.
  3. Send out additional copies of W-2s. The employee's copy, however, is not the only copy an employer must submit. The additional copies each have different purpose identified under the form's fields.
  • Copy A - Submitted to the SSA
  • Copy B - Sent to employees to be used for federal tax returns
  • Copy C - Sent to employees for their personal records
  • Copy D - Kept by employers for internal records
  • Copy 1 - Sent to an employee's state or local tax authority, if necessary
  • Copy 2 - Same as Copy 1

How Do Employers Submit a W-2?

How to Fill Out a W-2

Every copy of the form contains the same required fields, each of which records specific information:

BOX

DESCRIPTION

a-f

Various pieces of identification information for the employee and employer, including the employee's SSN, the employer's Employer Identification Number (EIN) and address, etc.

1

The total taxable income the employee received, including base salary, commissions, reported tips, bonuses, and any other taxable compensation.

2

The total amount of federal income taxes the employer withheld from the Box 1 amount.

3

The total amount of the employee's income that's subject to Social Security taxes. Note, this amount may differ from Box 1 if the employee contributed to savings accounts for medical expenses, retirement, etc.

4

The total amount of Social Security taxes the employer withheld from the Box 3 amount.

5

The total amount of the employee's income that's subject to Medicare taxes. Note, this amount may differ from Box 1 if the employee contributed to savings accounts for medical expenses, retirement, etc.

6

The total amount of Medicare taxes the employer withheld from the Box 5 amount.

7

The total amount of income reported earnings from tips. This amount is included in the Box 1 amount.

8

The total amount of income the employer claims to have paid the employee in tips. This amount is not included in the Box 1 amount.

9

This box is reserved for future use by the IRS and should always be empty.

10

The total amount (if any) an employer paid or incurred for the employee's dependent care benefits.

11

The total amount (if any) of deferred compensation an employee received from an employer for a non-qualified retirement plan.

12

Specific amounts from Box 1 that went towards deferred compensation, such as savings accounts for medical expenses, retirement, etc. Each box will have a reporting code accompanying the amount listed to indicate exactly what the amount went toward.

For example, if an employer contributed $5,000 of the amount from Box 1 to the employee's HSA, one of these Box 12 spaces would report "W | 5000".

13

Indicates any of the following:

  • The total income isn't subject to federal income tax since the individual was a statutory employee.
  • The employee participated in an employer-sponsored retirement plan.
  • The employee received sick pay from a third-party.

14

Lists any relevant tax information that doesn't fit elsewhere on the form. For example, if the employer withheld amounts for union dues or state disability insurance, those amounts would appear here.

15

The abbreviation for the state in which the employee owes withholding taxes and the ID number assigned to the employer by that state.

16

The total amount of the employee's income that's subject to state taxes.

17

The total amount of state taxes the employer withheld from Box 16.

18

The total amount of the employee's income that's subject to local taxes.

19

The total amount of local taxes the employer withheld from Box 18.

20

The name of the locality in which the employee owes local withholding taxes.

 

How to File a W-2

To determine whether they must file information returns electronically or in print, employers must add together the number of Form W-2s and information returns (from the below list) for the calendar year. If the total number of forms and returns is 10 or more, the employer must file them electronically. 

  • Form 1042-S
  • Form 1094 series
  • Form 1095-B or Form 1095-C
  • Form 1097-BTC
  • Form 1098, Form 1098-C, Form 1098-E, Form 1098-Q, or Form 1098-T
  • Form 1099 series
  • Form 3921
  • Form 3922
  • Form 5498 series
  • Form 8027
  • Form W-2G
     

Supercharged Tax Prep: Ditch the paper trail and data entry by importing your W-2 directly into TurboTax, TaxAct, or H&R Block with just a few clicks.

What W-2 Penalties Can Employers Face?

Sending a W-2 Too Late

If W-2s are not sent by the January 31 deadline, and there is no approved extension, employers will receive penalties based on when the forms eventually do go out and the size of the organization. Businesses that gross $5 million or less in the last three tax years are considered small, while those that gross more are considered large. The IRS reserves the right to increase these penalties each year.

How Late

Penalty Per Form

Maximum Penalty Per Year
Small Businesses

Maximum Penalty Per Year
Large Businesses

Between 1 - 30 days

$60

$220,500

$630,500

Over 30 days, but before August 1

$120

$630,500

$1,891,500

On or after August 1

$310

$1,261,000

$3,783,000

Note: If you don't send your employees their W-2 forms at all, you'll get hit with the same penalty as if you sent them on or after August 1.

Sending a W-2 with Errors

Penalties due to incorrect amounts or errors vary by the severity and cause of the error, as well as when an updated version is submitted to the SSA.

For example, if an amount is off by less than $100 or none of the withheld taxes are off by more than $25, employers won't receive any penalties and no corrected W-2s need to be created. If, however, the error exceeds these amounts, employers need to submit Forms W-2C, Corrected Wage and Tax Statement before August 1 with a valid explanation for the error or severe penalties can follow.

Employers should also be ready to provide a Form W-2c to any employee who requests it, as incorrect forms can cause issues for the employee's tax returns, too.

Read More: 5 Common Payroll Errors and How to Avoid Them

 

Frequently Asked W-2 Questions for Employers

What's the Difference Between a W-2, W-4, and 1099?

  1. Form W-2 shows an employee's annual wages and how much of those wages were withheld to pay federal, state, and local taxes.
  2. Form W-4 is what helps employers know how much to withhold from the employee's wages for said taxes. It's typically submitted by an employee when they are hired and includes information regarding the employee's dependents, allowances, marital status, etc.
  3. Form 1099 is a tax document that reports income individuals receive from sources other than an employer. This form can be used to report wages and taxable income for individuals classified as independent contractors.

What is Form W-2G?

Form W-2G is also similar to Form W-2 but focuses on income and taxes from gambling winnings instead of earned wages.

What happens if a W-2 is undeliverable?

If a W-2 form is undeliverable, the employer should save the copy for at least four years. Do not try to forward the form to the SSA. HR and Payroll software can make it easier for employees to access W-2 forms electronically and avoid this issue.

What should employers do if employees lose their W-2s?

Employers should produce a duplicate of the W-2 and write, "Reissued Statement" at the top (unless the W-2 was provided to the employee electronically). Also, employers should refrain from sending the reissued statement to the SSA.

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