What Does Each Box Mean on a Form W-2?
This year, I’m volunteering my time for my company’s free tax preparation services for our customers. I work at a public utility in the southeast and we offer this service each year as assistance to our low- to moderate-income customers.
Recently, I attended my first session and will have to admit to not knowing having the form memorized. The most difficult to items recall are the W-2 Box 12 codes. That’s the one with a lot of abbreviations which mean many different things.
But before we get to that box, let’s run through the boxes and what they mean for W-2 employees.
Box 1 reports your taxable wages or salary earned from this employer. It includes wages, salary, tips you reported, bonuses, and any other taxable compensation. This is also where you will find taxable fringe benefits like group term life insurance. This reports your W-2 gross income from your employer.
Box 2 reports the total federal income tax withholding held and disbursed to the IRS by your employer.
Box 3 reports the total amount of your W-2 wages subject to Social Security tax. This tax is assessed on wages up to $128,400 for 2018 at a rate of 6.2%. Your employer also pays 6.2% on these wages.
Box 4 reports the total amount of Social Security taxes withheld from your pay stubs by your employer. For 2018, the figure should not exceed $7,960.80 ($128,400 * 6.2%). If you held more than one job during the year and your wages exceed $128,400, you may have overpaid on your Social Security taxes.
If you did, you can claim a refundable credit equal to this amount on your Form 1040.
Box 5 reports the amount of W-2 wages subject to Medicare tax.
Box 6 reports the amounts of Medicare taxes withheld. The tax is a flat rate of 1.45% and has no wage cap. For example, if you made $100,000, your W-2 Box 6 should say $1,450. However, the amount in Box 6 could be higher due to an additional Medicare tax which was implemented in 2013.
It adds an additional 0.9% on incomes over $200,000 if you’re single or head of household or $125,000 if you’re married filing separately, and $250,000 if married, filing jointly.
If all these taxes are beginning to add up, this is a great time to learn how to pay zero tax on passive income. Other than any applicable state taxes, you can sidestep most of the payroll taxes listed above.
However, this requires the passive income to meet the criteria defined by the IRS for “passive”.
Box 7 reports tip income you declared to your employer (if any). The amounts shown in Box 7 and Box 3 should sum to the amount displayed in Box 1. Also, this sum should not exceed $128,400 in 2018.
Box 8 reports tip income allocated to you by your employer. This income needs to be added to your taxable wages shown in Boxes 1, 3, 5, or 7 and you will need to calculate Social Security and Medicare taxes on this amount in addition to what you paid in Boxes 4 and 6.
Box 9 is no longer needed on the form. It was meant to display the advance earned income tax credit but this practice has since been ended.
Box 10 reports any dependent care expenses reimbursed from your employer’s flexible spending account (FSA). It can also show the amount of dependent care services paid for by your employer.
Any amounts under $5,000 aren’t considered taxable. However, any amount in excess of this threshold must be reported in Boxes 1, 3 and 5.
Box 11 reports any money distributed to you from your employer’s non-qualified deferred compensation plan or pension plan. This amount is already included as W-2 taxable income in Box 1.
Box 12 includes a lot of possible information related to deferred compensation or other compensation. The IRS has attempted to simplify this box by allowing employers flexibility with how they report this information.
Employers may enter a single letter or double letter code with a corresponding amount of compensation. For a reference guide of what these letters mean, see this publication on page 12.
Box 13 will have places for three checkmarks to appear. If you are a statutory employee, the boxes will be marked. This means you report wages on your W-2 on Form 1040 Schedule C. Your wages are not subject to withholding so you should see a zero or blank in Box 2.
However, they are subject to payroll taxes (Social Security and Medicare), so Boxes 3 through 6 should have content.
Additionally, they will be checked if you participated in your employer’s retirement plan during the year. This includes a 401(k) plan, a 403(b) plan, SEP-IRA, SIMPLE-IRA, or another type of pension plan. Please note, your ability to deduct contributions to an IRA plan might be limited based on your income if you participated in a retirement plan. Further, if you contributed to a Roth IRA, you cannot deduct these from your income taxes. Similarly, kids couldn’t deduct contributions made to Roth IRAs for kids.
As a final note for Box 13, you will also see a check if you received sick pay from a third-party under your employer’s insurance policy instead of sick pay directly from your employer. For reference, sick pay is not included in Box 1 wages although it’s typically subject to payroll taxes.
Box 14 reports additional tax information from your employer. This information will come with a brief description to denote why they’re listed. Such items could include employer-paid tuition assistance, after-tax contributions to a retirement plan, union dues, or other benefits paid by your employer.
Box 15 reports your employer’s state and state tax identification number.
Box 16 reports the total amount of wages you earned in a state. If you worked across state lines for your employer as part of your work, there will be multiple lines shown in this Box.
Box 17 reports the associated state income taxes withheld from the amount shown in Box 16. These might count as tax deductions you can use toward the $10,000 state and local taxes limit (SALT taxes) if you itemize in 2018.
Box 18 reports the total amount of wages you have earned subject to local, city, or other applicable income taxes.
Box 19 reports the total amount of taxes withheld from wages shown in Box 18. This amount might also be deductible as part of the SALT taxes deduction limit on Form 1040 Schedule A.
Box 20 reports a brief description on the taxes paid in Box 19.