Your W-2 Form: Understanding the Basics

In our previous post, we covered some basics to help you read and understand your paycheck better. Now let’s talk about W-2 forms. This handy document is awaited by many once January rolls in. Below is a quick breakdown to help you understand the document better.

Let’s start with the simple stuff – verifying your information, especially your social security number. It is important that you check and double-check the social security number on your W-2 form. If the number is incorrect, report it to your employer and obtain a new W-2. An incorrect social security number means that your deductions for income tax, social security and medicare are not being credited to you, but the wrong SSN instead.

Box 1 – Wages, tips and compensation: Outlines your taxable income for the year – what your employer paid you.

Box 2 – Federal income tax withheld: Total amount of federal income taxes deducted from your income.

Box 3 – Social security wages: Income amount subject to social security/FICA tax. There is a maximum amount of Social Security tax that can be withheld from an employee. For 2011, you do not pay Social Security taxes on any earnings above $106,800. If you made more, you will only pay social security/FICA tax for the initial $106,800.

Box 4 – Social security tax withheld: Total amount of social security tax deducted from Line 3.

Quick Fact: Beginning March 1, 2012, the social security tax rate will be 6.2%. The previous rate (for 2011) was 4.2%. [source]

Box 5 – Medicare wages and tips: Total income amount subject to Medicare tax. Unlike social security tax, there is no limit on the amount of wages subject to Medicare tax.

The rest of the boxes (6-11) apply to those individuals who either received tips, paid for dependent care expenses such as a cafeteria plan or flexible spending arrangement and/or payments received from an employer’s nonqualified retirement plan.

Boxes 12a to 12d are filled with letter codes to report certain items. For example, Code D indicates pretax money into your retirement plan. For more details on what these letter codes mean, visit this page.

Box 13: These boxes will be checked if they apply to you. If the Retirement Plan box is checked, this means that you are part of a employer retirement plan, even if you don’t contribute.

Box 14 – Other:  Additional tax information will be placed in this box. For longshoremen/women, this includes union dues.

Box 15 – State and Employer’s State ID Number: State in which you earned your wages and your employer’s state ID number.

Box 16 – State wages, tips, etc: Total amount of wages worked in a particular state.

Box 17 – State income tax: Amount of state income tax withheld from the wages illustrated in Box 16.

Now that you’ve read the recent blog posts, will you look at your paycheck and W-2 form more closely?

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About the Author

Alejandra Gutierrez Alex is the new Social Media Specialist for the ILWU Credit Union. She's a 'nerd' at heart who enjoys community building. Her obsessions: baked goods and old mariachi ballads.