F. A. Q.

F. A. Q.

UNDERSTANDING YOUR W-2

Your W-2 has a lot of information about your compensation, however it has to be decoded.

BOX 1

Reports your total taxable wages or salary for federal income tax purposes. The number includes your wages, salary, tips you reported, bonuses, and other taxable compensation. For example, taxable fringe benefits such as group term life insurance will be included here. Box 1 does not include any pre-tax benefits, such as savings contributions to a 401(k) plan, 403(b) plan, or health insurance.

BOX 2

Reports the total amount your employer withheld from your paychecks for federal income taxes. This represents the amount of federal taxes you have paid in throughout the year.

 

BOX 3

Reports the total amount of your wages subject to the Social Security tax. The Social Security tax is assessed on wages up to $118,500 as of 2017. If Box 3 shows an amount over the wage base, ask your employer to correct your W-2. Tips reported to your employer are not included in the Box 3 amount (they're reported in Box 7).

 

BOX 4

Reports the total amount of Social Security taxes withheld from your paychecks. The Social Security tax is a flat tax rate of 6.2% on your wage income up to $118,500 as of 2017. Any wages you earn over $118,500 aren't subject to the Social Security tax.

 

BOX 5

Reports the amount of wages subject to the Medicare tax. There is no maximum wage base for Medicare, so the amount showing in Box 5 may be larger than the amount showing in Box 1. Medicare wages include any deferred compensation, 401(k) contributions, or other fringe benefits that are excluded from the federal income tax. The amount in Box 5 typically matches your entire compensation from your job.

 

BOX 6

Reports the amount of taxes that were withheld from your paycheck for the Medicare tax, which is a flat tax rate of 1.45% of your total Medicare wages as of 2017. You might find that the amount in Box 6 is greater than the amount in Box 5 multiplied by 1.45% if you earn a significant income. That would be due to the additional Medicare tax which was implemented in 2013. It's an additional 0.9% on incomes over certain thresholds.

 

BOX 7

Shows any tip income you reported to your employer. It will be empty if you didn't report any tips. The total of Boxes 7 and Box 3 should not exceed the $118,500 Social Security wage base. The amount from Box 7 is already included in the Box 1 amount.

 

BOX 8

Reports any tip income that was allocated to you by your employer. This amount is not included in the wages reported in Boxes 1, 3, 5, or 7. Instead, you must add it to your taxable wages on Form 1040 Line 7, and you must calculate your Social Security and Medicare taxes including this tip income using IRS Form 4137. You might want to review the information in Publication 531 concerning allocated tips or consult with a tax professional if any income shows in Box 8 of your W-2.

 

BOX 9

Should be empty.

 

BOX 10

Reports any amounts you might have been reimbursed for dependent care expenses through a flexible spending account, or the dollar value of dependent care services provided to you by your employer. Amounts under $5,000 aren't taxable, but any amount over $5,000 should be reported as taxable wages in Boxes 1, 3 and 5.

 

BOX 11

Reports any amounts that were distributed to you from your employer's non-qualified deferred compensation plan or non-government Section 457 pension plan.

 

BOX 12

Applies to deferred compensation and other compensation. Several types of compensation and benefits can be reported in Box 12, so the IRS has simplified this as much as possible by allowing your employer to enter a single letter or double letter code followed by the dollar amount of your compensation. Some of the common codes are:

  • Code D, E, F, G, H – Retirement account contributions

  • Code V – Income from the exercise of stock options

  • Code W – Health Savings Account (HSA) account contributions

  • Code DD – Cost of employer- sponsored health coverage

  • The IRS has additional details on Box 12

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