Understanding Your W-2, Part 1

If you haven’t received your W-2 yet, you should be soon.  This is the first in a several-part series where I go line-by-line through a Form W-2, so you understand what you are looking at.

Line 1 (wages, tips and other compensation):  This is the amount of your gross income that is reported on Line 7 of your Form 1040.  For many employees, this will be your gross wages minus contributions to a 401(k) and cafeteria plan.  Someone whose employer-provided health insurance includes a same-sex partner will see the value of that insurance added into Line 1.

Line 2 (federal income tax withheld):  Self-explanatory.  The amount of federal taxes withheld from your paycheck during the year.

Lines 3 and 5 (Social Security wages / Medicare wages):  The amount of wages subject to the 6.2% Social Security tax and 1.45% Medicare tax.  Contributions to a 401(k) plan are taxed for Social Security and Medicare purposes.  For some people, these two boxes might be different, because only the first $106,800 of wages are taxed for Social Security purposes, but all wages are taxed for Medicare purposes.

Lines 4 and 6 (Social Security / Medicare tax withheld):  The amount of Social Security and Medicare taxes withheld from your paycheck during the year.

Box 7 (Social Security tips):  For people who receive tip money, this reflects the amount of tips you reported to your employer.

Box 8 (allocated tips):  This box is a little strange.  For restaurant workers, it reflects the difference between what you reported as tip income to your employer, and 8% of the restaurant’s income.  That is a very general explanation.  If your W-2 shows an amount in Box 8, you probably want to seek the advice of a tax professional because you may have to file a Form 4137.