Tax season is always a bit hectic for both companies and employees. After all, generating W-2 forms is not the easiest process in the world. When you're suddenly the one responsible for generating these tax forms as a small business owner, your first question may be "What exactly do all of these little boxes actually mean?"
We've compiled a guide so that you can finally see the W-2 explained in a clear way and know exactly what you need to do next tax season. Let's get started!
As a business owner, you have to deduct federal and state taxes from your employees' incomes throughout the calendar year. Then, when tax season arrives, you'll have to compile all of this information into W-2 forms.
The Internal Revenue Service will need to receive each employee's W-2 form. Each employee will also need three copies of their form. One copy stays with the employee, and the other two can be attached to the employee's federal and state tax returns if he or she plans to mail in his or her taxes during tax filing season.
Boxes A to F
Now, let's take a look at what all of those little boxes on your employee's W-2 form are for. Don't stress out, they are easier to comprehend that you might think.
For starters, you'll see Boxes A to F. These boxes are for your employee's and personal information and your business information. This information includes the employee's full name and Social Security number as well as your employer tax identification number, your business address, and your employee's current address.
Boxes 1 to 6
Now it's time to go over the W-2 form's numbered boxes. Let's say you're generating a W-2 form for employee Bob. Box 1 displays the amount of Bob's total income that was taxable during the past fiscal year. This income may also include bonuses, vacation pay, commissions, back pay and even severance pay.
Meanwhile, Boxes 2 to 6 display the income withheld for tax purposes -- specifically, Social Security, state income and federal income taxes, for example. Bob will need these numbers when he goes to do his tax filing.
Boxes 7 to 10
Boxes 7 to 10 include any tips that Bob may have received during the tax year. In addition, if you provided Bob with dependent care benefits -- for example, employer-reimbursed or employer-provided childcare costs -- this total would show up here.
Boxes 11 to 12
Boxes 11 and 12 show information related to multiple types of benefits and compensation. For instance, perhaps Bob made contributions to his 401(k) or 403(b) plan. This is also where you'll list what Bob contributed to his health savings account as well as any contributions your business made to this account.
Boxes 13 to 14
Box 13 explains whether Bob is a statutory employee -- an employee who is subject to Medicare and Social Security taxes but not to income tax. Examples of these employees include people who sell life insurance full-time.
Box 13 also details whether Bob took part in your company's retirement program. In addition, it explains if Bob received sick pay through your business's insurance policy rather than on his regular paycheck from you.
Meanwhile, Box 14 provides extra tax information as needed -- for instance, that related to state disability insurance.
The Remainder of the Boxes
The remainder of the boxes, Boxes 15 to 20, follow the same procedure used for Boxes 2 to 6 except this time it's for state tax information.
How We Can Help
We can help your business generate pay stubs and easily keep track of your finances. Contact us to further get the W-2 explained and learn how we can make the financial side of running your business much easier in 2018 and beyond!