W-2s are now in most employees’ hands and the questions are beginning! We thought it would be helpful to give you a handy reference with simple answers of what we have found to be the most commonly asked questions about the W-2. Remember: this is an overview…please refer to www.irs.gov/pub/irs-pdf/iw2w3.pdf for detailed information.
Box 1 – This box includes all taxable wages for each employee’s federal tax return. We often get this comment from employees: “Why doesn’t the amount in box 1 match my gross wages on my last pay stub?” It is not always commonly known that the amount in box 1 is total wages LESS any pretax earnings (including pension deferrals). In order for the employee to balance the W-2 to the final check stub of the year, he/she needs to take total wages minus pension deferrals, pretax insurance deductions, FSA/HSA/Dependent Care deductions, and any other pretax deductions that have come out of the check. Note that this box may also include taxable fringe benefits. We won’t go into detail here about those but you can get specific information at www.irs.gov/pub/irs-pdf/iw2w3.pdf.
Box 3 – Social Security wages are typically the same as the wages in box 1 EXCEPT pension deferrals are not excluded as they are in box 1 (if the employee earned tips they may not be reported here, either). In addition, for 2012, the maximum taxable wage limit for taxation was $110,100, so that is the maximum amount that will appear in this box.
Box 5 – Medicare wages and tips are typically the same as the Social Security wages EXCEPT there is no wage limit.
Box 10 – Pretax amounts withheld from the employee’s check for dependent care expenses are included in this box. The employee will use the amount in this box to help them complete Form 2441 (Child and Dependent Care Expenses) of their income tax return.
Box 12 – The most common codes used in box 12 are as follows:
- Code C – The taxable cost of group-term life insurance in excess of $50,000 (this amount is included in taxable wages in boxes 1, 3 and 5)
- Code D – Elective deferrals to a 401(k)
- Code W – HSA Contributions (this amount reflects both the employer and employee contributions to the HSA)
- Code DD – Cost of employer-sponsored health coverage (this amount is not taxable income…this is simply an informational field)
Box 14 – This is the “catch-all” box. Employers use this box to give additional information to the employee. Employers choose the label to use (unlike in box 12 where the codes are defined by the IRS).
Employee questions regarding their W-2 are frequent and, at times, the form can be quite complicated for employees to understand. The questions above address the questions employers are most likely to get from employees that have simple forms. As fringe benefits, more-than-2% shareholders amounts, tips, and a host of other required items are added, it’s time to check in with your payroll provider to ensure you are giving the appropriate answer to your employees’ questions. Your provider should be happy to help you address any questions or concerns your employees have regarding their W-2s.