Understanding the W2

This box contains the employee’s Social Security number.

This box contains the Employer’s Identification Number (EIN), also known as the Federal Employer Identification Number (FEIN) or the Federal Tax Identification Number.

• The EIN is a unique nine-digit number assigned by the IRS.

• Employers with or without employees are assigned an EIN.

• The EIN is used to identify a business by the IRS for tax reporting purposes.

This box contains the employer’s name, address, and zip code.

• The address may be different from where an employee reports to work.

This box identifies an employee’s unique W2 number in their employer’s payroll system.

This is all of the employee’s taxable earnings that may be subject to federal, state, or local taxes.

• This includes wages, salaries, tips, bonuses, and commissions.

• Taxable earnings are earnings subject to taxes AFTER all pre- tax deductions have been deducted.

• Federal Income Taxes are calculated on the total earnings AFTER Medical, Dental, Vision, and 401K have been deducted out of an employee’s check.

This is the amount of money taken out of an employee’s paycheck to pay the federal income tax.

• The tax rate an employee owes is based on the tax bracket they are in.

This is the earnings an employee made throughout the year that was subject to Social Security taxes.

• The wage base is $147,000 for 2022

• Any earnings beyond the wage base limit are not taxed for Social Security.

• The earnings subject to social security are calculated AFTER Medical, Dental, Vision are deducted from an employee’s paycheck.

Note: Although 401k is a pre tax deduction, it does not apply to Social security calculations.

The amount of money withheld from an employee’s pay checks for Social Security taxes for the year.

• This will be 6.2% (the Social Security rate) of the amount in Box 3.

This is the amount of an employee’s earnings that is subject to Medicare taxes.

• The Medicare wage base is unlimited.

Note: Although 401(k) is a pre-tax deduction, it does not apply to Medicare calculations.

This amount will be 1.45% (the Medicare rate) of the amount in Box 5.

Note: If the employee earns above $200,000, they pay 2.35% on the wages above $200,000.

• There is no wage limit for Medicare.

This is the amount of tips that an employee reported to their employer (from customers).

This is the amount of tips an employer attributed to an employee (from the company).

• These tips are considered income.

This is an old field that is now defunct.

If the employee is part of a dependent care assistance program (DCAP), this box reports the total amount of child or elder care expenses they were reimbursed.

• If the amount the employee received is $5,000 or higher, the value above $5,000 will be reflected in boxes 1, 3, and 5 as earnings.

This refers to the money received from an employer’s non-qualified deferred compensation plan or nonqualified savings planExample: A pension plan

• All of this amount is taxable and will already be reflected in Box 1.

This box has been appropriately referred to as “the kitchen sink” of the W2.

• This box is where the employer would report the amount that is taxed for various types of contributions, including health and retirement plans.

Each code has an associated letter:

A. Uncollected social security or RRTA (Railroad Retirement Tax Act) tax on tips

B. Uncollected Medicare tax on tips

C. Taxable cost of group-term life insurance (if over $50,000)

D. Elective deferrals to a section 401(k) cash plan

E. Elective deferrals under a section 403(b) salary reduction agreement

F. Elective deferrals under a section 408(K) (6) salary reduction SEP (Simplified Employee Pension)

G. Elective deferrals and employer contributions to a section 457(B) deferred compensation plan

H. Elective deferrals to a section 501(c)(18)(D) tax-exempt organization plan

I. There is no Box 12 code for the letter I

J. Sick pay that is nontaxable

K. 20% excise tax on excess golden parachute payments

L. Substantiated employee business expense reimbursements

M. Uncollected social security on taxable cost of group-term life insurance over $50,000 (for former employees)

N. Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000 (for former employees)

O. There is no Box 12 code for the letter O

P. Moving expenses paid by an employer directly to an employee (not taxable)

Q. Nontaxable combat pay

R. Employer contributions to an Archer MSA (Medical Savings Account)

S. Employee salary reduction contributions under a section 408(p) SIMPLE (Savings Incentive Match Plan for Employees) plan

T. Adoption benefits

U. There is no Box 12 code for the letter U

V. Income from exercise of nonstatutory stock option(s)

W. Employer contributions to an employee’s HSA (health savings account)

X. There is no Box 12 code for the letter X

Y. Deferrals under a section 409A nonqualified deferred compensation plan

Z. Income under a nonqualified deferred compensation plan that fails to satisfy section 409A

AA. Designated Roth contributions under a section 401(k) plan

BB. Designated Roth contributions under a section 403(b) plan

CC. This code was only for 2010

DD. Cost of employer-sponsored health coverage

EE. Designated Roth contributions under a governmental section 457(b) plan

FF. Permitted benefits under a qualified small employer health reimbursement plan GG. Income from qualified equity grants under section 83(i)

HH. Aggregate deferrals under section 83(i) elections for the calendar year

This is subdivided into three separate boxes:

a. The first box will be marked if the employee is a statutory employee.

A statutory worker is “an independent contractor who is considered an employee for tax withholding purposes [and meets certain criteria].”

b. The second box notes if the employee participated in an employer’sretirement plan.

c. The third box informs the IRS if the employee received any third party sick pay from their insurance policy. (Instead of receiving sick pay directly from the employer as part of a regular paycheck.) Sick pay is not included in taxable wages.

›This is the Other Earnings box

• There are a few staples of tax reporting that might appear in this box, including:

a. Union dues

b. Nontaxable income

c. State disability insurance withholding’s

d. Deducted health insurance premiums

e. The personal use of a company car

State Level-This includes the employer’s state and state identification number.

State Level-This shows the amount of wages that will be taxed by the state.

State Level-This shows the amount of state taxes that were withheld from an employee’s paycheck during the year.

Note: If the employee resides in a state without a reporting requirement these boxes will be blank. There are nine states that do not have state income tax. These states are:

• Alaska   

• Florida   

• Nevada   

• New Hampshire   

• South Dakota   

• Texas

• Washington

• Wyoming

• Tennessee

Local Level-This shows the wages subject to local taxes.

Local Level-This shows any money that has been withheld by a local tax entity.

Local Level-This gives the name of the municipality.

• This could be a city, county, municipality, or additional state tax.