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W-2 Forms: Understanding Your Most Important Tax Document

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Form W-2 Wage and Tax Statement
Alamy
Tax season is just about to begin, and before you know it, you'll be looking to gather up all your key tax forms to prepare your return. If you're like millions of other Americans, the most important tax form you'll receive all year is the W-2 your employer is required to send you. With so much vital information, your W-2 is likely to have the biggest impact on how much tax you have to pay and how big your potential tax refund might be.

Let's take a closer look at your W-2 and the key box-by-box numbers that you should focus on the most in preparing your taxes.

Box 1: What You Get Taxed On

When it comes to figuring your taxable income, the key number on your W-2 is in Box 1, labeled "Wages, Tips, and Other Compensation." This numbers includes all of your taxable earnings for the year, but it also incorporates some useful features that essentially do some of your tax-preparation work for you.

The IRS instructs employers not to include what it calls "elective deferrals" in the Box 1 figure.
The most common item that this affects is any contribution you make to an employer-sponsored retirement plan like a traditional 401(k) plan, as those contributions reduce your taxable income. The benefit of this treatment is that rather than having to keep track of your contributions yourself and include them on your tax return the same way you have to do for IRA contributions, your W-2 already automatically incorporates the necessary adjustment.

By the way, this partially explains why the figures in Boxes 3 and 5 are often different from the Box 1 amount. You do have to pay Social Security and Medicare taxes on amounts you contribute to a 401(k) plan. So for many employees, the Box 3 and 5 figures will be higher than Box 1. Still, the key figure that you'll report on your income tax return is the Box 1 amount.

Box 2: What You Already Paid the IRS

On the other side of the ledger, Box 2 gives you another key figure for your tax return: how much in taxes you had withheld from your paychecks throughout the course of the year.

This amount only includes the withholding for federal income tax. (You'll find Social Security and Medicare tax withholding in Boxes 4 and 6, but most taxpayers don't have to do anything with those figures on their federal tax returns.)

The information in Box 2 tells you not just what to include as tax withheld on your return -- it also gives you a guide to how big your refund will be. By adjusting the amount of tax you have withheld from your paychecks, you can increase or decrease the amount that shows up in Box 2 every year, and change the amount of your refund as a result.

Box 12: The Nontaxable Benefits You Got From Your Job

Apart from those two boxes at the top of your W-2, the other main figures you should look at are in Box 12. There, you'll see broken out deductions for 401(k) contributions (with Code D), or different codes if you have a different type of retirement plan, such as a 403(b) or 457(b) plan. Other figures, including employer contributions to a Medical Savings Account (Code R) or a Health Savings Account (Code W), will appear in Box 12, as will any adoption benefits your employer provided (Code T).

These figures don't usually go on your tax return. But they are helpful in seeing what you get from your employer that isn't included in your wages.

State Income Taxes

Boxes 16 and 17 at the bottom of your W-2 fulfill the same function for your state income tax return that Boxes 1 and 2 do for your federal return. By looking at these boxes, you can get a sense of what your state taxes should look like this year.

Be smart about your taxes

Your W-2 has a huge amount of vital information to help you prepare your tax return. By understanding all of that information, you'll give yourself the best chance to earn the full refund that you deserve.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google Plus.

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8 Comments

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jayjay135

i have been trying to but till mr you have go to facebook /hell no

January 18 2014 at 5:31 AM Report abuse rate up rate down Reply
frank cutler

that is why I pay an accountant because you can,t understand these forms

January 17 2014 at 1:30 PM Report abuse rate up rate down Reply
gto6351

I AM SEMI-RITIRED, I COLLECT SS AND WORKING PART-TIME. HOW MUCH IS SS TAXED?

January 17 2014 at 11:31 AM Report abuse +1 rate up rate down Reply
1 reply to gto6351's comment
Steve

Chances are, none. But see your tax advisor.

January 18 2014 at 2:56 AM Report abuse rate up rate down Reply
bsulzberger

A Haitian here in Fla. got a refund of $160,000.00 with no income. Just have to have to know how to fool them

January 17 2014 at 10:51 AM Report abuse rate up rate down Reply
adey849

my husband passed away in 2012 now for 2013 would I file as a Qualifying Widow?
No dependants

January 16 2014 at 10:57 PM Report abuse rate up rate down Reply
1 reply to adey849's comment
IHOR

In year of death, you file a normal joint return. Since you have no dependants for 2013 you must file single. Hence you are not qualifying for that specific tax treatment.

January 17 2014 at 4:11 PM Report abuse rate up rate down Reply
barb

do i need a copy of my 2012 tax return. I lost it during a move. how would i get a copy of
it from the IRS>

Could they Email me a copy of 2012 Tax 1040 or mail it to me. please let me know

i live in florida now.

January 16 2014 at 9:42 PM Report abuse rate up rate down Reply
1 reply to barb's comment
Steve

Can now order it online at irs.gov to get online or perhaps have mailed to you.

January 18 2014 at 2:54 AM Report abuse rate up rate down Reply
i_am_spartacus

It's for all the victim's of Obummercare who never had to fill out a tax return. Off with their heads..................................

January 16 2014 at 7:51 PM Report abuse +1 rate up rate down Reply
yeeehaaah

what about if you only get 1099's???

January 16 2014 at 6:08 PM Report abuse rate up rate down Reply
1 reply to yeeehaaah's comment
IHOR

You must file a Schedule C.

January 17 2014 at 4:12 PM Report abuse rate up rate down Reply