Understand Form W-2
Form W-2 contains wage information for the year for a specific employer. Information from the W-2 will be used when preparing your annual federal tax return.
The descriptions below are simplified summaries, and there may be other factors to consider when filing out each section. Learn more in the detailed IRS guidelines for filling out Form W-2.
- Box a: Your Social Security number. Please make sure that this is correct.
- Box b: Your company's Federal Employer Identification Number (FEIN).
- Box c: Your company's name, legal address, and zip code.
- Box d: This box can include a control number.
- Box e: Your legal first name, middle initial, and last name. Please make sure that this is correct.
- Box f: Your home address and zip code.
- Box 1: Your total wages subject to federal income tax for the year. This includes tips. This does not include pre-tax contributions, like contributions to section 125 health plans or 401(k) plans.
- Box 2: The total amount of federal income tax withheld from your paycheck for the year.
- Box 3: Your total wages subject to Social Security tax for the year. This amount will not include pre-tax contributions.
- Box 4: The total amount of Social Security tax withheld from your paycheck for the year.
- Box 5: Your total wages subject to Medicare tax for the year. This amount will not include pre-tax contributions.
- Box 6: The total amount of Medicare tax withheld from your paycheck for the year.
- Box 7: Your reported tips for the year.
- Box 8: Tips assigned to you in addition to your reported tips. No income, Social Security, or Medicare taxes have been withheld on allocated tips.
- Box 10: Amounts withheld from your paycheck to pay dependent care benefits for the year.
- Box 11: Amounts you received from your company's non-qualified retirement plan.
- Box 12: This box is used to show several types of compensation or benefits that are labeled with a letter code. For a complete list of codes, see the General Instructions for Forms W-2 and W-3, page 30.
- Box 13: This indicates if you were a statutory employee, participated in the company's retirement plan, or received third party sick pay for the year.
- Box 14: Other informational items such as S-Corp Insurance contributions and Personal Use of Company Car.
- Box 15: The state where your company is located and their state identification number.
- Box 16: Your total wages subject to state income tax for the year. This amount will not include pre-tax contributions.
- Box 17: The total amount of state income tax withheld from your paycheck for the year.
- Box 18: Your total wages subject to local, city, or other state income taxes for the year.
- Box 19: The total amount of local, city, or other state income taxes withheld from your paycheck for the year.
- Box 20: The code or name of the local, city, or other state tax reported in Box 19.
Understand Form 1099-NEC
All earnings are reported in Box 1 of the 1099-NEC as non-employee compensation. This form will be filed to the IRS and the required states for all domestic contractors who have been paid through your payroll account within the calendar year.
At this time, we file Forms 1099 regardless of the $600 threshold in order to provide contractors with the necessary forms to quickly and accurately file their personal tax return.
We currently do not support:
- 1099-NEC filings to locals, where applicable
- Back-up withholding, if required for your contractor
- Contractor withholding, if required by the state (i.e. for higher paid contractors or non-resident contractors)
- International contractor withholding or reporting.
The descriptions below are simplified summaries, and there may be other factors to consider when filing out each box. Learn more in the detailed IRS guidelines for filling out Form 1099-NEC.
- Box 1: Non-employee compensation: any compensation paid to the contractor over $600 including fees, commissions, prizes, and awards for services.
- Box 2: Not currently supported, so the box will be left blank.
- Box 3: Not currently supported, so the box will be left blank.
- Box 4: Federal income tax withheld during the year.
- Not currently supported, so the box will be left blank.
- Box 5: State tax withheld during the year.
- Not currently supported, so the box will be left blank.
- Box 6: The state abbreviation and state withholding account number (if applicable) of the company that is paying and utilizing the services of a contractor. This would only need to be reported if state income tax was withheld.
- The applicable state abbreviation will be listed.
- Box 7: State income paid to the contractor for the year.
IRS Form 940 allows employers to report their annual Federal Unemployment Tax Act (FUTA) tax. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs.
Most employers pay both a federal and a state unemployment tax. Only employers pay FUTA tax, it is not collected or deducted from employee wages.
Understand Form 941
IRS Form 941, the Employer’s Quarterly Federal Tax Return, allows employers to:
- Report income taxes, Social Security tax, or Medicare tax withheld from employee's paychecks and
- Pay the employer's portion of Social Security or Medicare tax
Most employers who pay wages to an employee must file Form 941 every quarter, regardless of their business entity type - you’ll need to file a form 941 if you have employees. If you don’t have any employees for the previous quarter, you still need to report that you didn’t have any tax withholdings within that quarter through this form.
In general, businesses with employees are required to file Form 941 every quarter, but there are a few exceptions.
- Businesses with seasonal employees. If you only hire employees seasonally, then you’re not required to fill out Form 941 every quarter. Instead, you’ll complete Form 941 for the quarter you hired seasonal employees and then inform the IRS that you won’t be filing Form 941 for several quarters.
- People with household employees. If you have a household employee, like a nanny, you don’t need to File 941. Instead, report the tax withholding annually on the Schedule H of Form 1040 (your personal tax return).
Businesses with farm employees. Wages paid for agricultural labor aren’t reported on Form 941. Instead, you’ll use Form 943.
Form 941 vs. Form 944
Employers are required to file Form 944 if their annual tax liability is less than $1,000 for Social Security, Medicare, and withheld federal income tax. These employers will file Form 944 annually instead of every quarter, and usually are smaller employers.
If an employer's tax liability and withheld federal income tax is more than $1,000 per year, then they will need to use Form 941 and file it quarterly.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.