This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.
You’ve probably seen a W-2 form a number of times. But do you understand W-2s well enough to answer questions from your employees?
If you have full-time employees, it’s a good idea to familiarize yourself with the W-2 form’s filing instructions and deadline before sending it out. We’re going to walk you through how to file a W-2 so you can help employees (and read your own W-2 if you get one).
Remember, this post is for educational purposes; nothing in it constitutes legal or professional advice — for specific tax questions related to your business, be sure to consult with a professional.
What is a W-2 form?
Form W-2, also known as a Wage and Tax Statement, is a form used to report annual wages, amount of taxes withheld from a paycheck, and benefits like health insurance to the Internal Revenue Service (IRS) and Social Security Administration (SSA). This form is filed by employers who engage in trade or business, including non-cash payments of $600 or more per year for services performed by an employee. Employees will also use information on their W-2 when preparing their tax returns.
The IRS states employers must complete and file Form W-2 for any employee:
- You withheld income, Social Security, or Medicare tax wages from, regardless of the amount of wages
- You would have had to withhold income tax from if the employee claimed no more than one withholding allowance (for 2019 or earlier Forms W-4) or had not claimed exemption from withholding on Form W-4
- You paid $600 or more in wages, even if you did not withhold any income, Social Security, or Medicare tax
W-2 form deadline
Employers must file 2022 W-2s (whether paper or digital forms) with the Social Security Administration January 31, 2023. Remember, there are penalties for filing late, so you should mark the deadline on your calendar. (If you work with independent contractors, the deadline to file 1099-MISC forms with the IRS is also January 31, 2023.)
How to prepare W-2s as an employer
Most payroll services mail a Form W-2 to employees. But sometimes they charge you for each one they produce and send. This isn’t the case with Square Payroll. It’s included with the service.
We want to make the W-2 process as hassle-free as possible for your business, so you can, well, get back to business. Square Payroll Form W-2 for each of your employees at the end of the year and mails W-2s to each of your employees. However, it’s still your (and your employees’) job to ensure that the information in the W-2s is accurate.(You can download W-2s through your Square Dashboard.)
Some of your employees may be independent contractors and still require a Form W-2 filed. These statutory employees might fall under a range of conditions that would require them to be treated as employees for certain employment tax purposes.
How to read your W-2 Wage and Tax Statement
Now, let’s break this form down with a look at each box and what it means. Let’s use a W-2 that a California employee might receive through Square Payroll.
Wages and taxes withheld
This is the most important section, so pay attention. It summarizes how much money you made and the amount of each tax that was withheld from your wages.
Box 1: Wages, tips, other compensation — This is how much you made from your employer last year in the form of wages, tips, and any other compensation. This is added to Line 7 of your federal personal income tax return.
Box 2: Federal income tax withheld — This is how much federal income tax was withheld from your pay. This is based on the Form W-4 you filled out when you started working. Taxes vary based on your filing status (being single, married, etc.), allowances for dependents, etc.
Box 3: Social Security wages — This is how much of your pay was subject to Social Security tax, not including tips.
Box 4: Social Security tax withheld — This is how much Social Security tax you paid.
Box 5: Medicare wages and tips — This is how much of your pay was subject to Medicare tax, including tips.
Box 6: Medicare tax withheld — This is how much Medicare tax you paid.
Box 7: Social Security tips — This is the total amount of reported tips that were subject to Social Security tax.
State taxes
Now that we’ve covered wages and federal withholdings, let’s go to the state section.
Box 12: There are four versions of Box 12 on the W-2 form: 12a, 12b, 12c, and 12d. Any amount entered in Box 12 has a corresponding code which explains what it’s for. Employees may typically see amounts for Code DD, which is for the cost of employer-provided health insurance, and Code D, which is for 401(k) contributions.
Box 14: This box includes any other taxes you paid, union dues, uniform payments, health insurance premiums deducted, etc. In this case, it shows the amount of California state disability insurance paid.
Box 15: This box has your employer’s state identification number.
Box 16: State wages, tips, etc. — This is the total of your wages, tips, and other compensation that was used to calculate how much state income tax you paid for the year.
Box 17: This is how much state income tax you paid.