US employees need a W 2 form to submit their yearly salaries and withheld taxes. All employers that pay wages must use it for payroll administration.
The W 2 form comprises several sections, divided into lettered and numbered sections, each requiring specific information about the employer, employee, and earnings. In this article, we have given section-by-section information for your ease.
Lettered Sections on the W-2 Form
Understanding W-2 lettered fields is crucial for accurate tax filing. The W-2 form from your employer lists your annual earnings and taxes withheld. Each letter-labeled W-2 box contains tax return-related information. Decipher these lettered fields with this guide:
Section A
This section of the W 2 form requires the employee's nine-digit SSN. Accurate tax reporting and identification are needed. The IRS uses the SSN to link employee income and tax information. Entering the correct SSN is crucial to avoid tax filing issues and delays.
Section B
Employer Identification Number is in Section B of the employee w 2 form. Tax documents require this IRS-assigned nine-digit number to identify your business. The IRS uses it like a business's SSN to track payroll and other taxes. Proper tax filing requires accurate EIN entry.
Section C
Online W-2 Section C contains the employer's official information. This section requires the business's legal name, mailing address, and ZIP code. This information helps the IRS process and associate employee earnings with the right employer by correlating the W-2 form with the employer.
Section D
Control Number goes in W-2 Section D. This unique identifier is usually generated by payroll software. It's necessary to identify each employee W 2 form in company records. Businesses with large workforces need the Control Number for internal tracking and organization.
Section E-F
The W 2 form online E and F Sections contain employee personal information. Employees must provide their current name, address, and ZIP code. This information must be present and accurate to mail tax documents and identify employees. Maintaining correct records requires regular verification of these details.
Numbered Sections of the W-2 Form
When preparing an employee W 2 form, it's crucial to understand and accurately complete each section. Here's a breakdown of critical Sections in plain, straightforward language, designed to help employers fill out the W-2 form online or on paper effectively.
Section 1
This section reports the total amount your employee earned in a year. It includes regular wages, bonuses, and any taxable fringe benefits. For instance, if an employee earned $50,000 in salary and received a $5,000 bonus, the total amount ($55,000) is what you report here. Remember, this figure is before tax deductions.
Section 2
Enter all federal income tax withheld from the employee's earnings. This number comes from the employee's W-4 form. For example, you enter an employee's annual tax withheld of $7,000.
Section 3
This Section includes wages subject to Social Security tax. For 2018, the wage cap is $128,400. So, if an employee earns above this, only $128,400 is subject to Social Security tax. For example, an employee earning $130,000 will only have $128,400 reported in this Section.
Section 4
Employers and employees contribute 6.2% of wages to Social Security up to the cap. If an employee's Social Security wages are $128,400, report the 6.2% withheld.
Section 5
This section reflects the total earnings subject to Medicare tax. Unlike Social Security, there's no cap on Medicare wages. If an employee earns $130,000, the total amount is subject to Medicare tax and should be reported.
Section 6
Both the employer and employee contribute 1.45% each towards Medicare. So, for an employee earning $130,000, the total Medicare tax withheld (1.45% of $130,000) is recorded here.
Section 7
This is where you report any tips your employee has disclosed relevant to Social Security. Added to the wages in Section 3, these tips should be the total reported in Section 1.
Section 8
Employers allocate extra tips to employees in specific industries, like food and beverage, if reported tips fall below a set percentage. These are not included in Section 1 but must be noted here separately.
Section 9
Previously used for reporting advance payments of earned income credit, this Section is now obsolete. Ensure this Section is left blank.
Section 10
Here, report any amounts reimbursed or paid to employees for dependent care, such as through a flexible spending account. For example, if an employee received $3,000 for childcare expenses, this is the figure you note in this section.
Section 11
This section of the employee W 2 form online reports non-government Section 457 or non-qualified deferred compensation plan distributions. It ensures employers and employees comply with tax laws by accurately reflecting deferred income. This section should be completed with the 2021 nonqualified deferred compensation plan limit of $19,500.
Section 12
The W-2 form includes IRS-approved deferred compensation plans. Employee pre-tax earnings, often for retirement, are listed here. In 2021, the IRS allowed a maximum deferral of $19,500 under 401(k), 403(b), and most 457 plans, emphasizing its importance in long-term financial planning.
Section 13
This W-2 Section addresses unique employment situations. It has statutory employee, retirement plan, and third-party sick pay checkboxes. Correctly ticking these boxes is crucial for tax reporting. Example: Retirement plan participation can affect an employee's IRA contributions, vital to their financial well-being.
Section 14
Report any additional compensation not covered elsewhere in this W-2 section. This could include tuition assistance, employer-paid health savings accounts, or other fringe benefits. In 2021, the IRS limited tax-free tuition reimbursement to $5,250, relevant to this Section.
Section 15
The online W-2 form's State ID Number identifies your business for state taxes. This ensures that state tax records accurately reflect your business's payroll expenses. Each state has different tax requirements and thresholds, making this number crucial to compliance.
Section 16
This Section shows state-taxable income. Employers must accurately report state wages because state tax rates vary. California had one of the highest state income tax rates in 2021, 13.3% for incomes over $1 million.
Section 17
This section lists the total state income tax withheld from employee paychecks. It's essential for state tax compliance. State tax requirements vary, and Texas has no income tax, so employers must calculate withholdings carefully.
Section 18
Local wages on the W-2 are taxed locally. This Section is crucial for employers with multiple locations because tax rates and regulations vary. Additionally, New York City has local taxes require precise reporting in this section.
Section 19
This section of the W-2 shows local income tax withheld. Compliance with local tax jurisdictions requires accurate reporting. As of 2021, Philadelphia's local income tax rate is 3.8712% for residents and 3.4481% for non-residents, which must be calculated.
Section 20
The final W-2 Section specifies the tax locality name. Correctly entering this information allocates taxes to the proper jurisdiction. This is crucial for businesses in multi-taxing jurisdictions like New York City's boroughs.
