Taxes and business
W-2
A W-2 is the IRS form an employer issues to each employee, reporting the wages paid and the federal, state, and FICA taxes that were withheld during the year.
What a W-2 is
Form W-2, the Wage and Tax Statement, is the form an employer sends to every employee after the end of the year. It summarizes how much the employee earned and how much was withheld from their paychecks for taxes.
The defining feature of a W-2 is withholding. Throughout the year the employer takes money out of each paycheck for federal income tax, state income tax where it applies, and FICA taxes for Social Security and Medicare, then sends those amounts to the government on the employee behalf.
What the form shows
A W-2 breaks out gross wages, federal income tax withheld, Social Security and Medicare wages and the tax withheld on each, and any state and local tax withheld. It may also show retirement contributions and other benefits.
Employers must provide W-2s to employees and file them with the Social Security Administration by January 31. The employee uses the W-2 to file their tax return, and because tax was already withheld, many employees receive a refund rather than owing a large balance.
W-2 versus 1099
A W-2 goes to employees, while a 1099-NEC goes to independent contractors. The big difference is that a W-2 has taxes withheld and the employer pays half of the Social Security and Medicare taxes. A 1099 contractor receives the full amount with nothing withheld and pays self-employment tax to cover both halves.
This is general information, not tax advice. Whether a worker should be classified as an employee or a contractor depends on the facts of the relationship, so consult a qualified tax or legal professional with specific questions.
Example: An employee earning a 60,000 dollar salary receives a W-2 in January showing 60,000 dollars in wages along with the federal income tax, state income tax, and FICA taxes that were withheld from their paychecks during the year. They use those figures to file their return.
FAQs
Frequently asked questions
When should I receive my W-2?
Employers are required to send W-2s by January 31. If you have not received yours by early February, contact your employer or former employer.
Can I get both a W-2 and a 1099 in the same year?
Yes. If you worked as an employee for one company and did contract work for another, you could receive a W-2 from the first and a 1099-NEC from the second.
Why was tax withheld from my W-2 wages?
Employers are required to withhold income and FICA taxes from employee paychecks and remit them to the government, which is why employees usually do not owe a large amount at tax time.
Related terms
1099 (Form 1099-NEC)
A 1099-NEC is an IRS form a business issues to a non-employee it paid 600 dollars or more during the year, reporting that income to the contractor and the IRS.
Sole Proprietor
A sole proprietor is the default, unregistered business structure for a single person, where you and the business are the same legal entity for taxes and liability.
EIN (Employer Identification Number)
An EIN, or Employer Identification Number, is a free federal tax ID number from the IRS that identifies a business, letting you keep your Social Security number off invoices and W-9s.
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