| Ah, it’s that time of the year again… tax time! The | | | | the total amount of EIC you will receive as a tax |
| time of year when you receive forms you can barely | | | | refund. Employees with advance EIC payments must |
| understand and hope that you get money back | | | | file Form 1040A or Form 1040. |
| instead of owing. | | | | Box 10: Dependent Care Benefits. Box 10 reports any |
| Fortunately, we can help you out on both those issues: | | | | amounts reimbursed for dependent care expenses, or |
| We can explain your W-2 and assist you if you need | | | | the dollar value of dependent care services provided |
| tax debt help. First, reading your W-2… | | | | by your employer. Amounts under $5,000 are |
| THE W-2 | | | | non-taxable benefits. Any amount over $5,000 is |
| A W-2 is the form you get at the end of the year that | | | | reported as taxable wages in Boxes 1, 3, and 5. |
| is used to report taxable wages and withheld taxes. | | | | Non-taxable benefits must be excluded from |
| Employers have a deadline of January 31st to send | | | | expenses claimed for the child and dependent care |
| out this form. If you do not get it soon after the 31st, | | | | tax credit on IRS Form 2441. |
| check out this W-2 article. | | | | Box 11: Nonqualified Plans. Box 11 reports any amounts |
| And now to the good stuff… | | | | distributed to you from your employer’s |
| Box 1: Wages, tips, and other compensation. Box 1 | | | | non-qualified deferred compensation plan or |
| reports your total taxable wages for federal income | | | | non-government Section 457 pension plan. The |
| tax purposes. This figure includes your wages, salary, | | | | amount in Box 11 is already included as taxable wages |
| tips you reported, bonuses, and other taxable | | | | in Box 1. |
| compensation. Any taxable fringe benefits (such as | | | | Box 12: Deferred Compensation and Other |
| group term life insurance) are also included in your Box | | | | Compensation. There are several types of |
| 1 wages. | | | | compensation and benefits that can be reported in |
| | | | Box 12. Box 12 will report a single letter or double letter |
| Box 2: Federal income tax withheld. Box 2 reports the | | | | code followed by a dollar amount. Here are the codes |
| total amount withheld from your paychecks for federal | | | | for Box 12. |
| income taxes. This represents the amount of federal | | | | Box 13: Check the Box. There are three check boxes |
| taxes you have paid-in throughout the year. | | | | in Box 13. Boxes will be checked off if any of these |
| Box 3: Social Security wages. Box 3 reports the total | | | | situations apply to you as an employee. |
| amount of wages subject to Social Security taxes. For | | | | *Statutory employee means that you must report the |
| 2005, the Social Security tax is assessed on wages of | | | | wages from this W-2 (and any other W2 forms |
| $90,000 or less. If Box 3 shows an amount over | | | | marked “statutory employee”) on Form 1040 |
| $90,000, you will need to have your employer correct | | | | Schedule C. Your wages are not subject to income |
| your W-2. If your total wages are under $90,000, then | | | | tax withholding (there will be a zero or blank amount in |
| the amounts reported in Boxes 1 and 3 should be the | | | | Box 2), but are subject to Social Security and |
| same. Tips reported to your employer are not included | | | | Medicare taxes (so Boxes 3 through 6 will be filled |
| in the Box 3 amount. Tip income is reported in Box 7. | | | | out). Statutory employees are strongly urged to use |
| The amounts in Box 3 and Box 7 should equal either | | | | tax preparation software to calculate their taxes. |
| the amount in Box 1 or the $90,000 maximum wage | | | | *Retirement plan means that you participated in your |
| base for Social Security taxes. | | | | employer’s retirement plan during the year. This |
| Box 4: Social Security tax withheld. Box 4 reports the | | | | might be a 401k plan, profit-sharing plan, or pension plan. |
| total amount of Social Security taxes withheld from | | | | As a participate in a retirement plan, your ability to |
| your paychecks. The Social Security tax is a flat tax | | | | contribute to a tax-deductible traditional IRA may be |
| rate of 6.2% for wages up to a maximum of $90,000. | | | | limited. |
| Wages above $90,000 are not subject to the Social | | | | *Third-party sick pay means that you received sick |
| Security tax. The maximum figure shown in Box 4 | | | | pay under your employer’s third-party insurance |
| should be $5,580 ($90,000 maximum wage base times | | | | policy. (Instead of receiving sick pay directly from your |
| 6.5%). If you have two or more jobs during the year, | | | | employer as part of your regular paycheck.) Sick pay |
| and your total wages exceed $90,000, you may have | | | | is not included in your taxable wages. |
| excess Social Security taxes paid-in. You will claim the | | | | Box 14: Other Tax Information. Your employer may |
| excess as a refund on Form 1040, Line 67. | | | | report additional tax information in Box 14. If any |
| Box 5: Medicare wages and tips. Box 5 reports the | | | | amounts are reported, they will have a brief description |
| amount of wages subject to Medicare taxes. There is | | | | of what the amounts are for. For example, union dues, |
| no maximum wage base for Medicare taxes. The | | | | employer-paid tuition assistance, health insurance |
| amount shown in Box 5 may be larger than the | | | | premiums you paid, or after-tax contributions to a |
| amount shown in Box 1. Medicare wages includes any | | | | retirement plan will be reported here. Some employers |
| deferred compensation, 401k contributions, or other | | | | report certain state and local taxes in Box 14, such as |
| fringe benefits that are normally excluded from the | | | | State Disability Insurance (SDI) premiums. |
| regular income tax. | | | | Box 15: State and State Employer’s Identification. |
| Box 6: Medicare tax withheld. Box 6 reports the | | | | Box 15 reports your employer’s state and state |
| amount of taxes withheld from your paycheck for the | | | | tax identification number. If you worked for the same |
| Medicare tax. The Medicare tax is a flat tax rate of | | | | employer in multiple states, there may be multiple lines |
| 1.45% of your total Medicare wages. | | | | of information. |
| Box 7: Social Security tips. Box 7 reports the amount | | | | Box 16: State wages. Box 16 reports the total amount |
| of tip income that you reported to your employer. If | | | | of taxable wages earned in that state. If you worked |
| you did not report tips to your employer, you will not | | | | for the same employer in multiple state, there may be |
| have an amount in this box. The amounts in Box 7 and | | | | multiple lines of information. |
| Box 3 should add up to the amount in Box 1, or the | | | | Box 17: State income tax withheld. Box 17 reports the |
| $90,000 maximum wage limit for Social Security taxes. | | | | total amount of state income taxes withheld from your |
| Box 8: Allocated tips. Box 8 reports any tip income | | | | paychecks for the wages reported in Box 16. |
| that your employer thinks you may have earned, but | | | | Box 18: Local wages. Box 18 reports the total amount |
| failed to report. This amount is not included in the | | | | of wages subject to local, city, or other state income |
| wages reported in Boxes 1, 3, 5, or 7. Instead, you must | | | | taxes. |
| add this to your taxable wages on Form 1040 Line 7, | | | | Box 19: Local income tax withheld. Box 19 reports the |
| and must calculate your Social Security and Medicare | | | | total amount of taxes withheld from your paychecks |
| taxes on this tip income using IRS Form 4137 (PDF). | | | | for local, city, or other state income taxes. |
| Taxpayers with any amount shown in Box 8, | | | | Box 20: Locality name. Box 20 provides a brief |
| Allocated Tips, should seek the advice of a tax | | | | description of the local, city, or other state tax being |
| preparer to figure out the best strategy for handling | | | | paid. The description may identify a particular city, or |
| this situation. Employees with allocated tips must file | | | | may identify a state tax such as State Disability |
| Form 1040. | | | | Insurance (SDI) payments. |
| Box 9: Advance EIC payment. Box 9 reports any | | | | TAX DEBT HELP |
| advance against your Earned Income Tax Credit paid | | | | If after filing you owe more tax than you can afford, or |
| to you by your employer. This only happens if you | | | | if you anticipate owing more than you can afford, |
| submitted IRS Form W-5 requesting your employer to | | | | check out our Tax Debt Solution page on for help in |
| add a portion of your anticipated EIC to your | | | | determining which debt solution is right for you. |
| paycheck. Advance EIC payments are repaid on Form | | | | Good luck! |
| 1040 as an additional tax payment, where it offsets | | | | |