Form W-2

Form W-2 is the year-end statement every US employer must issue to each W-2 employee by 31 January. It summarises the prior calendar year’s compensation: total wages, federal income tax withheld, Social Security wages and tax, Medicare wages and tax, plus state and local equivalents. The employee uses the W-2 to file their personal income tax return; the employer files a copy with the Social Security Administration.

The boxes that matter most:

• Box 1: federal taxable wages — this is not the same as gross pay. It’s gross pay minus pre-tax 401(k), pre-tax HSA, pre-tax health insurance premiums, and similar.
• Box 3 & 5: Social Security wages (up to the wage base) and Medicare wages (uncapped).
• Box 12: a series of coded items — D for traditional 401(k) contributions, DD for employer-paid health coverage cost (informational, not taxable), W for HSA contributions, etc.

The split between W-2 and 1099 status matters legally and financially. W-2 employees have FICA withheld, are covered by employer benefits, and the employer pays half of FICA. 1099 independent contractors handle their own self-employment tax (15.3% covering both halves of FICA) and don’t get employer-provided benefits — but they have far more deductible business expenses.

Use the paycheck calculator to model the W-2 to net-pay journey.