Basics to Understanding your W-2 form
Tax time is that time of the year most dreaded by people from all walks of life. It’s that time of the year when receipts and tax forms are taken out and laid down on the tables to start the arduous task of preparing and filing income tax returns. It is always a race against time to beat the deadline! Oh, yes, this is that awful time of the year when we are confronted once more with those long tax forms (W-2 form and 1040 forms) which according to some taxpayers are the hardest things in the world to understand. Alfred E. Neuman – the iconic main character of Mad Magazine had this to say about the tax forms: “It takes more brains and effort to make sense out of income tax form than it does to earn income.” The Mad Man’s social commentary couldn’t be more right because every time, at tax time, we always find ourselves struggling to understand the various entries on our W-2 form and figuring out how we are to reconcile them with our 1040 filings. Extra care is always taken since any error or omission warrants a penalty from IRS and even an on site audit by portfolio carrying IRS agents at times!
Download a sample of the W-2 form
The taxpayers’ frustrations with tax forms couldn’t be more vividly depicted than by a poem written by an anonymous writer. I couldn’t resist including the poem in this post to share it with everybody else who harbors the same feeling against the IRS. Here it goes (with some minor changes I made to fit this post):
I think that I shall never see
a W-2 form plain enough for me.
A W-2 form that I can understand
without a lawyer near at hand
To guide this poor benighted me
so I won’t owe a penalty.
A W-2 form that I will not detest
or take as more than an awful jest.
A form with pages that I can read
and fill out easily with some speed
Such forms weren’t made for fools like me
nor even God who made a tree.
So much for venting our ire on IRS for now, let us tackle more serious business and try to understand some basic things about the form and other matters relative to filing our tax information reports. The W-2 form and other tax forms are not really that complicated if you just give it time to be familiar with the tax forms. You don’t even have to hire a tax lawyer or an accountant to help you in filing your tax information.
What is the W-2 form?
The tax form filled up by an employer and sent to the IRS and the employee. It is also known as the Wage and Tax Statement Form and contains summaries of earnings and taxes withheld for a given year including State and Federal Income Taxes, FICA (Medicare and Social Security), FUTA (Federal Unemployment Tax), and SUI (State Unemployment Tax).
By law, every employer is obligated to fill up the form for every employee under his employ and send this to the IRS and the employee no later than January 31 of each year (the deadline set by IRS to employers). The deadline is meant to give sufficient time to the employee to prepare and file his own income tax return.
Together with another form called W-3 Form, all the W-2 form issued by an employer is sent to the Social Security Administration. The W-3 is a reconciliation form containing the total wages paid to and taxes withheld from all of its employees. Based on these reports, the SSA applies the corresponding Social Security credits to each employee’s account and shares all information it receives with IRS as a form of checks and balances.
What an employer should know about form submission
Apart from making sure every form is sent out to every employee by January 31, the W-3 Form (together with copies of all the form it sent out to all its employees) must be received by SSA no later than February 28.
The IRS collaborates and compares wage data with SSA. Should there be discrepancies; the employer will be required to submit new information to the IRS to correct them. If still there are unexplainable discrepancies then penalties will be levied on the employer for the tax year the discrepancies occurred.
What an employee should know about the form
An employee should use the form as basis for filing his own personal income tax return using the 1040 Form making sure that all information in both forms must correspond with each other. Again, any unexplainable discrepancy will warrant a penalty from IRS! An employee should therefore make sure that all the information he enters in his personal income tax return jive with what is in the form. It is important to therefore check the W-2 form immediately upon receiving it from the employer and contact the employer immediately should errors be detected.