What Is Form W-2 and What Do I Do With It?Personal Taxes
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The first step in many Americans’ tax preparation process is dutifully inputting the numbers on their Form W-2 into their tax software.
But what is this commonplace tax form? What purpose does it serve, and who gets one?
That’s what we get into in this article on Form W-2.
Form W-2 Overview
What Is Form W-2?
Form W-2 is an employee’s wage and tax statement; it reports an employee’s total taxable wages and other compensation, the taxes withheld on this compensation, information about an employee’s tax benefits, and other tax information.
Who Prepares Form W-2?
Form W-2 is prepared by employers for each of their employees that meet at least one of the qualifications below.
- Employees for whom the employer withheld any income, social security, or Medicare tax from wages paid to them
- Employees for whom the employer would have had to withhold income tax if the employee had claimed no more than one withholding allowance on Form W-4 or had not claimed an exemption from withholding on Form W-4
- Employees to whom the employer paid $600 or more in wages, even if no tax was withheld.
This covers the vast majority of employees.
When Should I Get My Form W-2?
Employers must distribute Form W-2 to each of their qualifying employees by January 31 after the tax year.
If January 31 falls on a weekend or legal holiday, the deadline is the next business day.
So because January 31, 2021, falls on a Sunday, the deadline for employers to distribute to you your 2020 Form W-2 is February 1, 2021.
Remember, however, that these deadlines are the deadlines for employers to mail your Form W-2 out, so you may actually receive the Form W-2 during the first week of February.
What If I Don’t Get My Form W-2?
If you haven’t received your Form W-2 by the first week of February, ask your employer about it.
If you no longer keep in touch with your employer, then wait until February 15. On or after that date, contact the IRS at 800-829-1040 and let them know about the situation.
What If I Get Multiple W-2 forms?
Many taxpayers receive multiple W-2 forms.
This is very common and will likely happen if you worked for more than one employer during the year.
What Should I Do If I Receive a Corrected Form W-2?
As you well know, employers aren’t perfect, and they make mistakes.
And from time to time they make mistakes on employees’ W-2 forms.
In this case, they are required to file Form W-2c, Corrected Wage and Tax Statement.
If you haven’t filed your tax return yet, simply use the corrected Form W-2c to complete your return.
If you have already filed your tax return using the incorrect, original Form W-2, then you may have to file an amended return if the correction changes your tax liability.
However, if the information that changed is simply informational, then you may not have to file an amended return.
If you’re not sure whether or not you need to file an amended return based on receiving a corrected Form W-2c, let me know in the comment section at the bottom of this article, and I’ll see if I can help you out.
Form W-2 Copies
Every Form W-2 has several — six, specifically — identical copies, but only three of these copies — Copies B, C, and 2 — go to you, the employee.
This copy is sent by the employer to the Social Security Administration.
This copy is sent to you. If you paper file your federal income tax return, you should send in this copy along with it.
This copy is sent to you to keep for your records.
This copy is retained by the employer for its records.
This copy is sent by the employer to the state or local taxing authority, if required.
This copy is sent to you. If you paper file your state or local income tax return, you should send in this copy along with it.
Form W-2, Box 14 “Other”
While other boxes on Form W-2 have neat little explanations in the instructions, Box 14 “Other” is a bit of a catch-all.
Here are some of the more common items listed in Form W-2, Box 14 and what they mean.
If you see “ESPP” on your Form W-2, this means that you participated in an employee stock purchase plan during the year.
These plans are very beneficial to employees since they permit them to purchase their employer’s stock at a discount, but they can make tax reporting a bit complicated and somewhat confusing.separate
To participate in this plan, you’ve likely had payroll deductions taken out of your paycheck every pay period to contribute to your stock purchase fund.
Periodically, your employer uses the money in this fund to purchase stock on your behalf at a discount (contact your employer to learn exactly how the discount works in your plan).
You do not pay tax when the stock is purchased on your behalf, but when you sell the stock, the discount you received is treated as compensation income and reported as taxable wages on your Form W-2.
The amount labeled “ESPP” in Form W-2, Box 14 is the amount treated as compensation income. You do not have to report this amount separately on your tax return since it is already included in your taxable wages.
Your gain — that is, the difference between the fair market value of the stock at acquisition and the amount you sell it for — is treated like any other capital gain and reported on your brokerage account statement.
If you see “RSU” on your Form W-2, this means that your employer granted you restricted stock units, and that these units vested during the year.
When this happens, the value of the stock is included in your taxable compensation and reported in Form W-2, Box 14 as “RSU”.
Similar to the “ESPP” amount, you do not have to input this amount separately on your tax return since it is already included in your taxable wages.
This previously-taxed amount is your basis in your stock when you sell it.
Note that dividends on restricted stock units should be reported on your tax return as wages, not dividends.
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.