It’s good to understand how your paychecks are reflected in your W2. This is the second of a two-part series, in which we’ll take an in-depth look at the information on W2 forms.
While tax forms and laws continue to evolve, the W2 form is one piece of the process that has stayed relatively consistent. In part 1 of this two-part series, I attempted to demystify the W2 forms by exploring and explaining boxes 1 through 9. Let’s continue this exploration by reviewing the rest of the W2 detail, starting with:
W2 Forms Box 10
Dependent Care – Box 10 of the W2 forms is used to report flexible spending (FSA) for dependent care. The Dependent Care FSA (also known as Dependent Care Assistance Plan) limit remains at $5,000 for married filing jointly/head of households in 2018.
W2 Box 11
Nonqualified Deferral Distribution – This box is used to report distributions to an employee from a nonqualified deferral plan or nongovernmental section 457(b) plan. These amounts are also included in box 1 as taxable wages.
W2 Box 12
Box 12 is used by the Internal Revenue Service (IRS) to highlight specific situations and amounts. The IRS has designated specific codes for these transactions and are defined as follows:
A — Uncollected Social Security or Railroad Tax Act (RRTA) tax on tips
B — Uncollected Medicare or RRTA tax on tips
C — Taxable costs of group-term life insurance over $50,000
D — Elective deferral under a 401(k) cash or arrangement plan. This includes a SIMPLE 401(k) arrangement.
E — Elective deferrals under a Section 403(b) salary reduction agreement
F — Elective deferrals under a Section 408(k)(6) salary reduction SEP
G — Elective deferrals and employer contributions (including nonelective deferrals) to a Section 457(b) deferred compensation plan
H — Elective deferrals to a Section 501(c)(18)(D) tax-exempt organization plan
J — Nontaxable sick pay
K — 20% excise tax on excess golden parachute payments
L — Substantiated employee business expense reimbursements (nontaxable)
M — Uncollected Social Security or RRTA tax on taxable cost of group-term life insurance over $50,000 (former employees only)
N — Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000 (former employees only)
P — Excludable moving expense reimbursements paid directly to employee
Q — Nontaxable combat pay
R — Employer contributions to your Archer medical savings account (MSA)
S — Employee salary reduction contributions under a Section 408(p) SIMPLE
T — Adoption benefits (not included in Box 1)
V — Income from exercise of nonstatutory stock options
W — Employer contributions (including amounts the employee elected to contribute using a Section 125 cafeteria plan) to your health savings account (HSA)
Y — Deferrals under a Section 409A nonqualified deferred compensation plan
Z — Income under a Section 409A on nonqualified deferred compensation plan
AA — Designated Roth contribution under a 401(k) plan
BB — Designated Roth contributions under a 403(b) plan
DD — Cost of employer-sponsored health coverage
EE — Designated Roth contributions under a governmental 457(b) plan definition and get more insight from the experts at H&R Block.
FF — Permitted benefits under a qualified small employer health reimbursement arrangement.
GG — Income from qualified equity grants under section 83(i).
HH — Aggregate deferrals under section 83(i) elections as of the close of the calendar year.
W2 Box 13
This box has 3 checkboxes within it:
Statutory Employee – Employees whose earnings are subject to social security and Medicare taxes but not subject to federal income tax withholding
Retirement Plan – Having the “Retirement Plan” box checked means you had access to a retirement plan such as a 401k plan at your work. It may limit your ability to get tax incentives for other retirement plans like an IRA.
Third Party Sick Pay – This box is only checked by third-party sick pay payers filing W2 forms for an insured’s employee or an employer reporting sick pay payments made by a third party.
W2 Box 14
If 100% of a vehicle’s annual lease value is included in employee income (box 1) it should be reported here. (It is also acceptable for an employer to provide the information on a separate statement).
This box can also be used by the employer to provide additional information such as disability payments, payments for a uniform, etc.
W2 Box 15
This is for the employer’s state identification number
W2 Box 16
State Wages, Tips, etc. – Box 16 on the W2 is used to report state income taxable wages. Each state has specific rules and one should understand if their state has unique circumstances. Most states generally follow the IRS guidelines for determining taxable wages which are calculated as follows:
This should include tips and taxable fringe benefits.
Less: Section 125 deductions (medical, dental, vision, dependent care, pre-tax commuter benefits, etc.)
Less: Deferred income (401k, SIMPLE IRA, 403b, etc.)
Equals: State income taxable wages
Bob is paid semi-monthly. On this paycheck, he earned $8,000 in salary. Bob gets a semi-monthly auto allowance of $1,000. He has a medical deduction of $1,500, and he contributes 10% of his income to his 401k. What’s Bob’s taxable income for state withholding?
*401k is calculated based on the definition of the specific 401k plan. Most plans do not include taxable fringe benefits in the calculation.
W2 Box 17
State Income Tax – This box is used to report state withholding for the year.
W2 Box 18
Local Wages, Tips, etc. – Similar to Box 16, this box is used to report wages for local taxes. Local taxes can also have rules for determining income that are specific to them.
W2 Box 19
Local Income Tax – This box is used to report local withholding for the year.
W2 Box 20
Local Name – This box is used to identify the locality for the tax.
We have now explored the W2 forms in detail. While the information on the W2 can seem esoteric, each piece of information has a specific purpose. Because much of the W2 information is used in tax filing, having a better understanding of the W2 means we have a better understanding of how our payroll transactions throughout the year impact our personal taxes.