W-2 Explained

Now you have your W-2.  Wages states $20,000, but you earned $35,000 last year. What happened?

The first two boxes are generally the only two most people are concerned with.  They show how much money you are going to have to report that you are taxed on and how much federal income tax was withheld.  Box 1 is entitled “Wags, tips , other compensation.  Box 2 is entitled “Federal income tax withheld.

Box 3 and 4 pertain to social security wages, the base and amount withheld.  Social security wages currently have a cap of $106,800, but is usually adjusted annually.  So the largest amount that should be in box 3 is the cap.  If you have two or more jobs in which you work for an employer, it is possible you may pay too much social security tax if the sum of wages from both jobs exceed the cap in any calendar year.  If this occurs, there is a place on your 1040 to claim the excess amount withheld due back to you.

Box 5 and 6 pertain to medicare wges, the base and amount withheld.  There is no cap currently for medicare tax, so the amount will equal the amount of compensation received.

The most common question pertains to the one asked in paragraph one.  In this example, the amount of social security and medicare wages will generally be the expected $35,000 figure.  But wages will be shown only at the $20,000 figure. Most of the time, if you view box 12, there is usually an entry for the difference, which in this case is $15,000.  This amount represents the amount of income you chose to defer into a retirement plan.  Box 13 should also show an “x” in the retirement plan box.  Retirement plan deferrals usually only apply to federal income tax, but are not exempt or deferred from social security or medicare taxes.