Understanding the W-2 in 10 minutes or Less

With the start of a new year approaching how prepared are you to close the books on last year?

“Closing the books” is a phrase companies use to refer to the year-end process. It’s the time when organizations must balance payroll and prepare to file all the necessary paperwork to local, state, and federal regulatory bodies.  

One of the most critical steps in that process is delivering the appropriate paperwork to your workers. This includes sending 1099’s to contractors, filing 941s, distributing W-2s to all current and former employees, and more.

Any worker classified as an employee throughout the tax year must receive a W-2 from their employer to file their annual tax return. For those workers, the W-2 form is vital to completing their year-end process, and the responsibility is on your business to get it to them promptly.

Tax forms, however, can be daunting. So, we’re here to give you a breakdown of the W-2 form to help you feel prepared to tackle them during your year-end process.

Streamline your year-end process with a trusted partner like Greenshades. Find out how we can support you at year-end here!

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How to Complete Form W-2

Multiple parts to form W-2 need to be completed before any copy or version can be sent.

Before you begin, review these critical notes from the IRS about preparing copies of the W-2:

• Do not print Forms W-2 on double-sided paper.
• Do not staple Forms W-2 together or to Form W-3.  

• File Forms W-2 either alphabetically by employees' last names or numerically by employees' SSNs.
• All information must be clearly printed using black ink in 12-point Courier font with no corrections made to the entries and with no entries exceeding the size of the boxes.
• Make all dollar entries without the dollar sign and comma but with the decimal point (00000.00). Show the cents portion of the money amounts.
• If a box does not apply, leave it blank.
• Send Copy A to the SSA.
• Send Copy 1, if required, to your state, city, or local tax department.
• Send Copies B, C, and 2 to your employee.
• Keep Copy D, and a copy of Form W-3, with your records for 4 years.

Once you’re ready to go, fill out each box with the appropriate information. Here is a breakdown of what the boxes mean and what your company needs to include. To view more detailed instructions, visit IRS.gov.

   Box a—Employee's social security number

   Box b—Employer identification number (EIN)

   Box c—Employer's name, address, and ZIP code

   Box d—Control number

• This is generally a box used by the employer to number the amount of W-2s. This box is not often used, it is typically generated by the payroll software an employer may use.

   Boxes e and f—Employee's name and address

• Enter the name as shown on your employee's social security card (first name, middle initial, last name). 

   Box 1—Wages, tips, other compensation

• This shows the total taxable wages, tips, and other compensation that an employer paid their employee during the year.

   Box 2—Federal income tax withheld

• This shows the total federal income tax withheld from an employee's wages for the year.

   Box 3—Social security wages

• Shows the total wages paid (before payroll deductions).

   Box 4—Social security tax withheld

• This shows the total employee social security tax (not the employer’s share) withheld, including social security tax on tips.

   Box 5—Medicare wages and tips

• The wages and tips subject to Medicare tax are the same as those subject to social security tax (boxes 3 and 7), except that there is no wage base limit for Medicare tax.

   Box 6—Medicare tax withheld

• This is the total employee Medicare tax (including any Additional Medicare Tax) withheld. This does not include the employer’s share.

   Box 7—Social security tips

• This shows the tips that the employee reported to the employer even if the employer did not have enough employee funds to collect the social security tax for the tips.

   Box 8—Allocated tips

• If the employer operates a large food or beverage establishment, this box shows the tips allocated to the employee.

   Box 9 – Empty box

   Box 10—Dependent care benefits

• This shows the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by an employer for their employee.

   Box 11—Nonqualified plans

• The purpose of box 11 is for the Social Security Administration to determine if any part of the amount reported in box 1 or boxes 3 and/or 5 was earned in a prior year.

   Box 12 – Codes

• Box 12 is a complicated section with many codes. The IRS created a reference guide to help those understand each code’s meaning.

   Box 13—Checkboxes (check the ones that apply)

• Statutory employee - This box is checked for statutory employees whose earnings are subject to social security and Medicare taxes but not subject to federal income tax withholding.
• Retirement plan - This box is checked if the employee was an “active participant” (for any part of the year) in any of the following.

• A qualified pension, profit-sharing, or stock-bonus plan described in section 401(a) (including a 401(k) plan).
• An annuity plan described in section 403(a).
• An annuity contract or custodial account described in section 403(b).

• A simplified employee pension (SEP) plan described in section 408(k).
• A SIMPLE retirement account described in section 408(p).
• A trust described in section 501(c)(18).
• A plan for federal, state, or local government employees or by an agency or instrumentality thereof (other than a section 457(b) plan)

• Third-party sick pay - This box is checked only if the employer is a third-party sick pay payer filing a Form W-2 for an insured's employee or are an employer reporting sick pay payments made by a third party.

   Box 14—Other

• If an employer included 100% of a vehicle's annual lease value in the employee's income, it also must be reported here or on a separate statement to the employee. An employer also may use this box for any other information they want to give their employee. Each item will be labeled.

   Boxes 15 through 20—State and local income tax information

What’s next?

Once your W-2s are prepared, it’s time to complete all other related year-end forms. At the least, your W-2s must be filed with a W-3 to the Social Security Administration.  

Many additional forms may apply to your workers and your business, though, so be sure to watch our webinar about types of year-end forms and their deadlines.

Is your business required to e-file? Find out here!

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Let Greenshades Help!

We can make your year-end process a breeze. Our user-friendly forms management system will walk you through every step of the process, helping you identify and correct errors before any forms are submitted. Distribution is easy, too! Choose from our print and mail services or let employees instantly download year-end documents through our self-service portal.

In 2021, Greenshades filed year-end forms with 99% accuracy, so avoid any headaches at your year-end by taking advantage of our field-tested solutions. If you would like to book a discussion with one of our year-end forms processing experts, contact sales, sales @greenshades.com or call us at 888-255-3815, and we'll set up a time to discuss your specific needs.  

New to the year-end forms process? Check out our Beginner’s Guide to Year-End Forms ebook to help you get started!

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