The W-2 form is a crucial document used for reporting an employee's income and tax withholding information to the Internal Revenue Service (IRS). It provides a comprehensive overview of an individual's earnings and serves as a basis for calculating their federal, state, and local income taxes. When completing the W-2 form, employers are required to report various types of income earned by their employees. These income types include:
1. Wages, Salaries, and Tips: This category encompasses the regular compensation received by an employee for their services rendered to an employer. It includes hourly wages, salaries, bonuses, commissions, and tips reported to the employer.
2. Federal Income Tax Withheld: Employers are responsible for withholding federal income tax from their employees' paychecks based on the information provided by the employee on their Form W-4. The amount withheld is reported on the W-2 form.
3. Social Security Wages: Social Security wages refer to the portion of an employee's earnings that are subject to Social Security tax. In 2021, the Social Security tax is levied on the first $142,800 of an individual's wages.
4. Social Security Tax Withheld: Employers are required to withhold a specific percentage of an employee's wages as Social Security tax. The amount withheld is reported on the W-2 form.
5. Medicare Wages and Tips: Medicare wages include all earnings subject to Medicare tax. Unlike Social Security tax, there is no wage limit for Medicare tax. All wages are subject to a 1.45% Medicare tax rate.
6. Medicare Tax Withheld: Employers must withhold Medicare tax from their employees' wages at a rate of 1.45%. The amount withheld is reported on the W-2 form.
7. State and Local Income Tax Withheld: Depending on the jurisdiction, employers may be required to withhold state and local income taxes from their employees' wages. The amounts withheld are reported on the W-2 form.
8. Dependent Care Benefits: If an employer provides dependent care assistance to an employee, the value of those benefits should be reported on the W-2 form. This includes any amounts paid directly to a dependent care provider or the fair market value
of any care provided by the employer.
9. Nonqualified Plans: Nonqualified plans are employer-sponsored retirement or deferred compensation plans that do not meet specific IRS requirements. Any contributions made by the employer or employee to these plans should be reported on the W-2 form.
10. Other Compensation: This category includes any additional forms of compensation received by an employee, such as reimbursements for business
expenses, fringe benefits, or other taxable benefits provided by the employer.
It is important for employers to accurately report all these income types on the W-2 form to ensure compliance with tax regulations and to provide employees with an accurate record of their earnings. Employees should carefully review their W-2 form to ensure its accuracy and use it when filing their income tax returns.