What You Need to Know about W-2 Forms

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TLDR

Form W-2, also known as the Wage and Tax Statement, is a tax document that reports an employee’s wages, tips along with federal income tax, Social Security tax, and Medicare tax withholdings for the previous tax year. For example, as an employee, if you receive a Form W-2 in 2021, that form reports your wages and taxes for the 2020 calendar year. To be eligible to receive a Form W-2, the employee must have earned at least $600 in the relevant tax year.
Both Social Security and Medicare taxes—which are reported on the W-2--are often referred to as Federal Insurance Contributions Act (FICA) taxes. However, FICA taxes are not the same as federal income taxes. Instead, these taxes fund both the Social Security and Medicare funds.
When filing a W-2 form, employers must complete and file the form with the Social Security Administration (SSA) and send a copy to the employee no later than January 31st of the following calendar year.
All copies of both Forms W-2 and W-3 can be accessed through the IRS’s website. Additionally, these forms can be ordered online or by calling 800-TAX-FORM (800-829-3676).
Employees who want to find their W2 online could request a copy of the filed W-2 only if they submitted the form with a paper filing of their tax return. However, if they filed their tax return electronically, they can request a wage and income transcript containing the information reported to the SSA. This includes the information on the W-2.
Additionally, the employee can request a copy of their tax return by filing a Form 4506-T with the IRS, checking the box for the Form W-2, and specifying the needed year. Once the IRS receives the form, employees need to allow at least ten business days to receive a copy of their tax return, including the W-2 information. Note that these transcripts do not include any state or local tax information.
As an employer, you need to understand the difference between a Form W-2 and a Form W-4. Where a Form W-2 reports the employee’s wages and withheld taxes for the previous tax year, a Form W-4 is filled out by the employee when they are hired or at any other point during their employment (if they need to make a change), notifying you of their social security number, marital status, and number of allowances and dependents, along with how much federal tax they want withheld from each paycheck.
To receive a Form W-2, you must be an employee, either full-time or part-time. However, for independent contractors, you should receive a Form 1099, not a W-2. Therefore, each independent contractor that provides services to your startup, totaling at least $600 for the year, should receive a Form 1099. Note, independent contractors cover their own employment and federal income taxes. You simply complete the form for the gross amount you paid for services provided.

Preparing and filing taxes are business tasks that startup founders can’t ignore. However, when you’re juggling multiple to-do lists while trying to get your startup from pre-seed to Series A, you may think that specific tax rules don’t yet apply to you.

The Internal Revenue Service (IRS), though, doesn’t care how small or new your startup is; they expect you to file required tax forms applying to you and your startup. So, for example, if you’ve hired one employee, part-time or full-time, you need to understand Form W-2s.

Like all good business habits, you need to start with a solid foundation. And with one or more employees, even if you’re just getting started, there’s no time like the present.

In this article, we will discuss the basics of W-2 forms and why they’re essential to your startup—at any stage.

What is an Employee W-2 Form?

Form W-2, the Wage and Tax Statement, is a tax document that reports an employee’s wages, tips along with federal income tax, Social Security tax, and Medicare tax withholdings for the previous tax year. For example, as an employee, if you receive a Form W-2 in 2021, that form reports your wages and taxes for the 2020 calendar year. To be eligible to receive a Form W-2, the employee must have earned at least $600 in the relevant tax year.

Both Social Security and Medicare taxes—which are reported on the W-2--are often referred to as Federal Insurance Contributions Act (FICA) taxes. However, FICA taxes are not the same as federal income taxes. Instead, these taxes fund both the Social Security and Medicare funds.

For the 2020 tax year, the total amount of FICA taxes equals 15.3 percent, made up of Social Security tax rates of 13.4 percent (on the first $137,700 of net income) and Medicare rates of 2.9 percent (of all net income with no cap). It’s important to know that employers are responsible for one-half of these taxes, where employees are responsible for the remaining one-half. As such, employees pay 7.65 percent in FICA taxes, and the employer pays the balance of 7.65 percent.

For 2021, the FICA rates remain the same. However, the wages cap for Social Security taxes has been increased from $137,700 to $142,800 of net income. Note that the Medicare portion of FICA applies to all net income, with no cap. However, understand that for any wages above $200,000 (for single tax filers), those employees pay an additional 0.9 percent in Medicare taxes. For joint returns, this amount is $250,000, and for married taxpayers filing a separate return, the threshold amount is $125,000.

To add to the confusion, FICA taxes are also referred to as employment taxes.

How Do I File a W-2 Form?

When filing a W-2 form, employers must complete and file the form with the Social Security Administration (SSA) and send a copy to the employee no later than January 31st of the following calendar year. Note that a copy of the W-2 form is not filed with the IRS. If January 31st falls on a weekend or on a holiday, the deadline is moved to the next business day. W-2 forms can be filed electronically online or via U.S. Mail.

If you choose to file your W-2 forms via U.S. Mail, you will also be required to file a Form W-3, Transmittal of Wage and Tax Statements, with the SSA as well. The amounts reported on your Forms 941, 943, 944, or Schedule H to the Form 1040 should match the numbers on your Form W-3 in addition to the totals on your Form W-2.

How to Get a W-2 Online?

All copies of both Forms W-2 and W-3 can be accessed through the IRS’s website. Additionally, these forms can be ordered online or by calling 800-TAX-FORM (800-829-3676).

Note that the official Form W-2 is available in a packet of multi-copy forms, providing all copies that the employer needs for filing with the SSA as well as distributing to employees.

How to Find My W2 Online?

Employees who want to find their W2 online could request a copy of the filed W-2 only if they submitted the form with a paper filing of their tax return. If they filed their tax return electronically, they could request a wage and income transcript containing the information reported to the SSA. This includes the information on the W-2.

Additionally, the employee can request a copy of their tax return by filing a Form 4506-T with the IRS, checking the box for the Form W-2, and specifying the needed year. Once the IRS receives the form, employees need to allow at least ten business days to receive a copy of their tax return, including the W-2 information. Note that these transcripts do not include any state or local tax information.

How to Fill Out a W-2 Form for an Employee

Here, we’re going to break down how to fill out a W-2 form for an employee—line by line.

Boxes A through F

Form W-2s lettered boxes include the name and address of your startup and your employee, your employee’s Social Security number, and your federal employer identification number (EIN) and state ID number, as applicable.

Boxes 1 and 2

Box 1 shows your employee’s taxable income, including wages, salary, tips, and bonuses, while Box 2 shows how much federal income tax you withheld from your employee’s pay.

Boxes 3 and 4

Box 3 details how much of your employee’s earnings were subject to Social Security tax. Box 4 shows the amount of Social Security tax that you withheld.

Boxes 5 and 6

Box 5 shows how much of your employee’s pay is subject to Medicare tax. Box 6 reflects how much Medicare tax was withheld.

Boxes 7 and 8

If part of your employee’s pay is in the form of tips, Box 7 shows how much your employee reported in tips, where Box 8 shows how much you reported in tips that you paid to your employee.

Box 9

This box is no longer in use, so it’s grayed out. You do not have to enter any data in Box 9.

Box 10

Box 10 reports how much your employee received in dependent care benefits, if any.

Box 11

Box 11 details the amount of deferred compensation from a non-qualified plan your employee received from you as the employer.

Box 12

Box 12 reports other types of compensation or reductions from your employee’s taxable income. A letter code corresponds to each entry. For example, you might report 401(k) plan contributions in this box.

Box 13

Box 13 indicates whether your employee was an active participant in your startup’s retirement plan.

Box 14

Box 14 allows you as the employer to report any additional tax information that may not fit into the other boxes. Examples include union dues, educational assistance payments, or money donated to charities, to name a few.

Boxes 15-20

The last six boxes on the Form W-2 reflect amounts reported for both state and local use.

What Is the Difference Between a W-2 and a W-4?

As an employer, you need to understand the difference between a Form W-2 and a Form W-4. Where a Form W-2 reports the employee’s wages and withheld taxes for the previous tax year, a Form W-4 is filled out by the employee when they are hired or at any other point during their employment (if they need to make a change), notifying you of their social security number, marital status, and number of allowances and dependents, along with how much federal tax they want withheld from each paycheck.

Completed W-4s should be kept as part of each employee’s file.

What is the Difference Between a W-2 and a 1099?

To receive a Form W-2, you must be an employee, either full-time or part-time. However, for independent contractors, you should receive a Form 1099, not a W-2. Therefore, each independent contractor that provides services to your startup, totaling at least $600 for the year, should receive a Form 1099. Note, independent contractors cover their own employment and federal income taxes. You simply complete the form for the gross amount you paid for services provided.

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