W-2

A W-2 is the annual wage statement your employer is legally required to send you and to file with the Social Security Administration, and it is built around the idea that different boxes report different tax bases. Box 1 shows your federal taxable wages, which is your gross pay reduced by pre-tax items like traditional 401(k) contributions and pre-tax health insurance premiums. Boxes 3 and 5 report your Social Security and Medicare wages separately, and those two figures are usually higher than Box 1 because pre-tax retirement contributions reduce federal taxable wages but not FICA wages.

You use the W-2 directly when preparing your tax return: Box 1 becomes part of your gross income, Box 2 (federal income tax withheld) is applied as a payment credit against your total tax liability, and Boxes 17 and 19 report state and local withholding for those returns. If you worked more than one job in a year, you will have a separate W-2 from each employer, and all of them need to be entered — missing one is a common source of IRS mismatch notices, since employers also file a copy directly with the IRS.

A frequent point of confusion is why Box 1 wages differ from your final paycheck's gross pay total — pre-tax deductions like 401(k) contributions, HSA contributions, and premiums for employer health plans reduce Box 1 without reducing Boxes 3 and 5, since those benefits are exempt from income tax but not always from FICA. Employers must furnish W-2s by January 31; if yours is late or wrong, the fix is to contact the employer first and, only if that fails, involve the IRS. Keep W-2s for at least three years since they are the primary support for a wage-related audit.