Employers are obligated to report information about the salaries of their employees to the IRS. Form W-2 is designed to include all this information, including how much of your money is withheld from your paycheck for tax purposes.
Employees always need to get a copy of their W-2 before they can file their taxes. This is why the IRS requires employers to send it to you no later than January 31st. The end of the tax year is typically December 31st.
Your Salary and Withholding
Employees should always expect to receive a W-2. Independent contractors and self-employed workers have it slightly different. Even if the work you do is similar to that of a salaried employee, you may receive an earnings state instead. In other words, you’ll get Form 1099, instead of a W-2.
You’ll see from your W-2 that there are different boxes in which you can report different types of income.
For example, box one will include salary payments and your total annual salary. Box two will include how much of this was withheld as part of Federal taxes.
Remember, only part of your income must be contributed towards Social Security taxes. Box three will only the include the amount that’s less than your total yearly salary.
There are also a range of other boxes, including those for Medicare tax and state income taxes, if relevant to you.
Why is Tax Withholding so Important?
Tax withholding is an incredibly useful tool for making sure you don’t get hit by a big tax bill you can’t pay. The amount of withholding will determine how much your employer sends to the IRS.
One common myth is that you can pay all your taxes on April 15th. This is not actually correct. The IRS demands that everyone makes payments throughout the year. A lot of people don’t notice because their employers take care of this for them.
Once you get around to preparing your Federal tax return, the amount of withholding your employer reports through Form W-2 is subtracted from your total tax bill. You can use this withholding calculator and get an idea as to whether you still have tax to pay or whether you can expect a tax refund.
This calculation is the same on state income tax returns.
Is Your Personal Information Correct?
Make sure you inspect the identifying information section on Form W-2. This is a tracking feature that ensures any tax payments and refunds are credited to you. It’s also important for the IRS because then they can inspect your tax returns and compare them to the corporate tax return submitted by your employer.
The IRS also receives a copy of your W-2, so they already know whether you owe them tax. It’s a way for the IRS to ensure that everyone is submitting a tax return, when necessary.
If there are any discrepancies between the identifying information on your W-2 and other tax forms, you must report this to your employer. They will solve the problem for you.
Attach Form W-2 to Your Tax Returns
After you complete your tax returns, you’ll need to include a copy of Form W-2. If you decide to use an online tax preparation platform, this is easy. They’ll automatically attach it, so you don’t need to worry about forgetting anything.
If filing by mail, you’ll need to include a paper copy on the front of your tax return.