This post relates to US personal finance.
What Is A W-2? Navigating This Important Tax Form
When you’re employed, you and your employers both have the duty of filing the appropriate taxes. For instance, the Internal Revenue Service (IRS) requires every employer to account for and report salary information for their employees on a W-2 tax form.
As such, you’re expected to receive your Form W-2 every January or the first week of February. This form usually serves as an information return as it intends to notify the proper parties regarding your salary earnings and other relevant information. However, what is Form W-2 all about?
Form W-2: What it is and how it works
Primarily, the W-2 refers to a form that an employer should provide to the Internal Revenue Service (IRS) and the employee concerned during the year-end. It’s known as the official Wage and Tax Statement that accounts for the employee’s yearly wages and salary, as well as the amount of tax that has been withheld from their take-home pay.
Moreover, Form W-2 comes with federal and state sections as every employee is required to prepare and file taxes on both levels. Typically, information about the employee’s income, and the company’s Employer Identification Number (EIN) and their state number should be filled out in the form. Also, the annual earnings of the employee and the amount withheld for taxes, such as the federal income tax, Social Security tax, and many more, should be reported in the form.
Form W-2: What you should know when dealing with this form
Now that you already know the basics of Form W-2, it’s time to get familiar with all the things to consider when navigating this tax form. Here’s what you should know when dealing with Form W-2 for purposes of taxation:
Responsibility of filing
Unlike other tax forms, W-2 is one of the forms that your employer should prepare and fill out. After entering all the information, your employer should mail a copy to you, the Internal Revenue Service, and your state by the end of January. Remember, it’s always a good idea to receive your W-2 forms early in January so you’ll have more time to check and to have errors fixed before filing it to the Social Security Administration.
Preparation Of W-4 forms
As an employee, you need to make sure that you provide accurate information on your W-4 forms so your employer will find it easy to prepare your W-2 form. Ideally, your employer is mandated to secure a copy of W-4 for all their employees. This tax form should include information that would help calculate the amount of your federal income tax based on your marital status, number of dependents, and many more.
For example, it’s essential to determine the amount of allowance you’re claiming because the more allowances you intend to claim, the more money you can take home from your paycheck. Therefore, in some cases, you need to decide whether to claim a 0 or 1 on your W-4 for purposes of knowing the amount of federal income tax your employer should deduct from your income.
On the other hand, it’s also crucial to know that the IRS modified the W-4 form for the year 2020 to include information about lower tax rates and the possibility of under-withholding. Having said that, to be able to report all the required information, make sure you use the latest 2020 W-4. If you’re a new employee, it’s better to utilize the new form, but if you’re a current employee who doesn’t want to make changes after January 2020, you’re not required to use the new W-4 form.
Eligibility to receive W-2
Generally, W-2 forms are only available to regular employees. Thus, if you’re self-employed or an independent contractor, you’re not eligible to receive W-2. Instead, you’ll get an earnings statement embodied on a Form 1099.
The W-2 form comes with boxes that present various items concerning your income. Under box 1, you can see the information about your annual salary payments along with the federal tax withheld from your paycheck. In box 3, you can find an amount less than your yearly wages. Other boxes report your wages, which are subject to other taxes.
Filing of tax returns
Once you’re done with the preparation of your tax returns, the next step is to get ready to file them along with a copy of your W-2 tax form. Make sure to attach a copy on the front page of your tax return if you’re filing it through the mail.
Indeed, the preparation and filing of taxes can be challenging for both employees and employers. That’s why understanding the differences between the tax forms and filing processes required for your circumstances is extremely important to ensure compliance with the tax laws of your state.
Hopefully, you find this article helpful when you need to navigate this W-2 form. Although your employer is responsible for the preparation of this form, knowing this tax form and how it works can make sure you’re doing things correctly as far as your taxes are concerned.