Recently my friend asked me why her social security wages were different from the wages/tips amount on her W-2. Of course I explained it to her but it also made me realize that most people probably don’t know enough about their W-2. So here is a short explanation to help you understand your W-2.
The first thing that that you should know is that the difference between the W-2 and the W-4.
The easy way to remember:
The W-4 is for (4) your employer.
The W-2 is given to (2) you.
Your W-4 is a form you fill out to tell your employer what to hold in reserve for your taxes.
Your W-2 is reporting your earnings/wages to you, the IRS, and your state.
It reports the total of all monies you made, but also what you had withheld. Here is a basic breakdown.
Box 1 is wages and reported tip income.
Box 2 is your federal withholding, an amount held in reserve for your possible federal tax amount, which will be determined when you file your federal tax return.
Box 3 is your social security wages, these may or may not be the same as your box 1 earnings. If they don’t match, it is probably because you have a retirement plan through your work in which the premium you pay is being subtracted from your wages “pre-tax”. Also social security wages can be no higher than $168,600 for 2024. This box will never be higher than the the limit for that particular year.
Box 4 is your social security tax withholding. This is 6.2% of your wages. Your employer also pays 6.2% of your wages to social security. (Self employed persons are required to cover the full 12.4% tax themselves). The maximum social security tax is $9,932.40 for 2024.
Social security pays benefits for older Americans as well as permanent social security disability insurance.
Box 5 is your Medicare wages. There is no maximum for these wages. They will typically match your box 1 wages.
Box 6 is your your Medicare tax. Medicare tax is 1.45% of your wages. Medicare is medical coverage that you become eligible for when you reach retirement age.
Box 7 is social security tips. If you work in the hospitality industry you may have tips listed in this box. Typically these will be tips received on credit card slips and they are reportable as income.
Box 8 is allocated tips. Allocated tips are going to be tips reported from your employer. Typically this is going to come from employers who allocate a portion of the company’s revenue to you as a tip.
Box 9 is blank. In the tax office we call these un-named boxes “in reserve” for future use. They may have had a purpose in the past as well.
Box 10 is for dependent benefits. This amount is for monies paid to you by your employer for childcare. There is a maximum of $5000 for this box. However there is no maximum that your employer can give you. It means the maximum you can exclude from federal taxes is $5000. Any remaining benefits would be included in your wages in box 1. This $5000 is would also be subtracted from any amount used for the dependent care credit.
Box 11 is for deferred compensation. Deferred compensation is monies you have earned but do not get paid until a later specified date.
Box 12 (a-d) is for retirement plan deductions. These amounts can alter the amounts in your box 1.
Box 13 is a designation of your income, your participation in your company’s group retirement plan, or your company’s disability benefits (third party sick pay).
Typically you will see the retirement plan marked if you have amounts listed in box 12 (a-d).
Box 14 is the other box. This is typically going to be your gas allowances or reimbursement paid for company expenses. Although sometimes it will be your local disability insurance.
Box 15 is your state information. It will list the state and the state identification number that has been assigned to your employer.
Box 16 is your state wages. These typically will match your federal wages in box 1 however, if work in more than one state with the same company there will be multiple listings here and if any of those states do not have state income taxes they will not be listed.
Box 17 is your state income tax withholding. An amount held in reserve for your possible state tax amount, which will be determined when you file your state tax return.
Box 18 is for local wages.
Box 19 is for local income tax.
Box 20 is locality name.
These boxes are typically for states who have a piggy bank style of local taxes. Indiana, Iowa, Maryland and New York. Sometimes you will see you state disability insurance (SDI) listed here.
You may feel like this is a lot of information however, You only need to know what applies to you. Not all of these boxes will contain numbers. Your tax preparer will know what these boxes mean as well. If you have questions, or something doesn’t seem correct you should ask your tax preparer. Your wages may or may not match your last paycheck stub however they should be close. You should know what you are putting into your retirement account(s, or if you have dependent care benefits and what that really means. This is just a guide to help you understand what is being reported to the IRS on your behalf.
If you have a topic you would me to cover here in my blog shoot me a message!!
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A Quick Guide to Tax Season
These are important dates to remember.
For Individuals; (just a quick fyi: this means family too, individual is as opposed to a business return) April 15 of every year is considered the Last filing date. Generally you can think of February 1 of every year as the First filing date. These dates aren’t set in stone anymore. We have added holidays, and if there is a pandemic, (who would’ve thought, huh?) and now that the IRS (Internal Revenue Service) does almost all tax return filings electronically, the start date is when they are ready for that influx of electronic information. So the beginning and ending dates may change. That’s why it’s a good rule of thumb to use February 1 as the start and always April 15 as the final day to file your individual tax return.
Individual Extensions have to be filed by April 15.
October 15 is the last day to file your individual tax return if you filed an extension.
An extension is an extension to file not to pay! This means you should only file an extension if you know you get a refund. You can file an extension if you know that you will owe but you have to make a good faith payment with the extension in the amount you think you will owe.
Here is a tip; if you know you owe every year you should file your taxes on the first day so you have time to gather the money.
For Corporations (this is not a side business, this is a separate entity that has filed titles of incorporation) the first Filing Date is going to be the same as an individual return, however the last Filing Date is March 15 and the last day to file a corporate return with an extension is September 15.
These dates won’t apply to most individuals. Just knowing these dates and having them set in stone in your mind will relieve some of the stress with taxes. These dates were common knowledge, but somehow they have become unknown in our younger developing society. Let’s take control and get to know our own tax returns so we can make the best decisions for ourselves and our families.
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