How to Explain W-2 to Your New Employees

February 16, 2018

Tax forms aren’t all that interesting, as a rule, but they are important documents. Your employees should understand the information on their W-2, to be able correct it if necessary and to know what to do with it. When an employee starts work with you, they are given a W-4 form to fill out. This form tells you how much tax to withhold. It can be helpful to explain this:

• When too much tax is withheld, a refund is usually waiting at tax time. But the employee will lose money on each paycheck through the year.
• If too little tax is withheld, the employee gets more money in each paycheck but may owe taxes at the end of the year.
• The best thing is to keep your withholding in line with your actual tax liability.

What’s on the W-2?

As an employer, you need to provide your employees with the W-2 by January 31, the same day it’s provided to the Social Security Administration. Have your employee make sure all information in the lettered boxes are correct.

• Box A: the employee’s Social Security number
• Box B: the employer’s tax identification number
• Box C: the company’s address, might be the headquarters, not the local address
• Box E: the employee’s full name (if the name changed, the employer should be notified)
• Box F: the employee’s address (don’t worry if it’s a former address, but it should be updated)
The numbered boxes record financial information, such as taxable wages or salary, total amount of withholding for federal, local and state taxes, wages subject to Medicare tax and Social Security tax, amount of Social Security tax and Medicare tax withheld, tip income and reimbursements from your employer. Your tax preparer will use the information on the W-2 to prepare your taxes.

Wallace & Associates, Encino tax consultants, can give you advice on preparing W-2s, taxes and much more. Contact us for Los Angeles tax preparation services, any time of year.