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How to Explain a W-2 Tax Form to New Employees

Woman standing in front of her restaurant holding an iPad that she uses to teach her employees about W-2 tax forms

Most people are familiar with the W-2 tax form without knowing exactly what it is, other than something used to file federal income taxes in April. If you are an employer, you may wish to explain the details of a W-2 tax form to new employees. The following will walk you through what information the W-2 tax form contains and how it is used.

What is a W-2 Tax Form?

A W-2 tax form, also known as the Wage and Tax Statement, is a document that employers send to their employees and the Internal Revenue Service (IRS) at the end of the year. The W-2 reports to the IRS how much each employee earned that year, as well as any taxes that were withheld from each paycheck. Employers must file W-2 forms by the end of January to report taxes and wages from the previous year.

Who Should Receive a W-2 Tax Form?

Any employees who work for an employer and earn more than $600 in a year should receive a W-2. That $600 includes wages, salary, cash payments, and taxable benefits.

In addition, any employee who works for an employer and has any taxes, including Medicare or Social Security taxes, withheld should receive a W-2, even if the total compensation is under $600. Some employers choose to send W-2 tax forms to all employees, regardless of how much money they earned.

Self-employed workers and contractors do not receive W-2 tax forms.

W-2 Tax Forms for Employers

Employers prepare six copies of the W-2 tax form for each employee. Copies B, 2, and C are for the employee. As for the other three copies:

  • Copy A is sent to the Social Security Administration. This is the only copy that is printed in red.
  • Copy 1 is sent to the appropriate local tax authorities.
  • Copy D is for the employer’s business tax records.

W-2 Tax Forms for Employees

The standard format for W-2 forms is a paper form. Employees can request to receive their W-2 tax forms electronically if the employer has a system in place for electronic forms. Employers can only send electronic forms to employees who consent to receive them.

Employees receive three copies of their W-2 tax forms:

  • Copy B is used to file a federal tax return. People who file paper returns send Copy B to the IRS. Taxpayers who file electronically do not need to send it in.
  • Copy 2 is used to file state, local, and city tax returns. People who file paper returns send this copy to the appropriate local tax authorities.
  • Copy C is for the employee’s personal tax records. People should keep Copy C for three years after filing their taxes.

Information Provided on a W-2

The W-2 tax form includes information about the employee, the employer, wages, taxes, benefits, and deferrals. Here is a breakdown of the information found on a W-2 tax form:

  • Employee (taxpayer) information: The W-2 lists the employee’s address, Social Security number, and name as it is printed on the Social Security card. Confirm that the Social Security number is correct. If not, employers must issue a corrected W-2 called a W-2c.
  • Employer information: The W-2 lists the Employer Identification Number, the employer’s name, and the employer’s mailing address, which may be different from the location of the business.
  • Income information: The W-2 lists the employee’s total taxable wages, tips, prizes, and taxable fringe benefits such as property, cash, or services. Taxable wages do not include money put into elective deferrals like 401(k)s, pretax benefits like Health Savings Accounts, or payroll deductions. It should also show the wages subject to Social Security and Medicare taxes.
  • Withholdings: The W-2 lists the total amount of money withheld for federal income, Social Security, and Medicare taxes.
  • Elected deferral programs: The W-2 lists the amount of money placed into elected deferral programs.

If you own a business and are feeling overwhelmed by the amount of paperwork involved with W-2 tax forms, you’re not alone. Payroll companies exist to help employers with their tax forms and accounting needs. Call (760) 421-5334 today to speak with a tax professional at Expert Payroll LLC.

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