Understanding Your W-2: A Complete Guide for Employees

With tax season approaching, one document you’re guaranteed to see in your mailbox or payroll portal is the W-2. For many employees, it arrives each January as a confusing form filled with numbers and codes, but it’s also one of the most important tax documents you’ll receive all year.

Your W-2 is more than just paperwork. It’s a detailed summary of how much you earned, the benefits you received, and the taxes withheld from your paychecks. Knowing how to read and understand it will help you feel prepared when it’s time to file your taxes, and can save you from costly mistakes or missed opportunities.

In this blog, we’ll break down the W-2 form step by step, explain what each section means, and give you a reference you can use every year when tax season rolls around.

DOWNLOAD OUR W-2 GUIDE 

What Is a W-2 Form?

A W-2, officially called the Wage and Tax Statement, is a tax document that your employer is required to send you (and the IRS) at the end of each year. It reports:

• How much money you earned (wages, tips, and other compensation)

• How much was withheld for federal, state, and local taxes

• How much was withheld for Social Security and Medicare

Your W-2 acts as the foundation for filing your taxes; it tells the IRS how much you made and how much you’ve already paid in taxes.

Key Sections of the W-2 Explained

Here’s a closer look at the main parts of the form, and what each box really means:

Boxes 1–6: Income & Federal Taxes

• Box 1 – Wages, tips, and other compensation: Your total taxable income for federal tax purposes. This isn’t just your salary, it can also include taxable benefits, stock options, and certain reimbursements.

• Box 2 – Federal income tax withheld: How much of your income was sent to the IRS throughout the year.

• Box 3 – Social Security wages: Your wages subject to Social Security tax (capped each year at the IRS wage base).

• Box 4 – Social Security tax withheld: The amount withheld at the standard Social Security tax rate.

• Box 5 – Medicare wages and tips: Similar to Box 3, but there’s no wage cap. High earners may also see an additional Medicare tax.

• Box 6 – Medicare tax withheld: The amount withheld for Medicare.

Boxes 7–14: Special Circumstances

• Box 7 – Social Security tips: Tips you reported to your employer.

• Box 10 – Dependent care benefits: If your employer helped cover daycare or childcare expenses.

• Box 12 – Codes: A grab-bag of items like retirement plan contributions, adoption benefits, and other compensation with special tax treatment.

• Box 13 – Checkboxes: Identifies if you’re a statutory employee, participated in a retirement plan, or received third-party sick pay.

• Box 14 – Other: Employer-specific items such as union dues or state disability insurance.

Boxes 15–20: State and Local Information

• Boxes 15–17: Report your state wages and the amount of state income tax withheld.

• Boxes 18–20: Report local wages and local income tax withheld, along with the name of the locality.

Why the Numbers Might Not Match Your Pay Stub

One of the most common questions employees have is: “Why doesn’t Box 1 match the total pay I earned this year?”

The answer is that certain benefits and deductions reduce your taxable income. For example:

• Pre-tax deductions (401k contributions, health insurance, commuter benefits) lower your taxable wages.

• Taxable benefits that are funded or paid for by the employer (like group term life insurance over $50,000) increase your reported wages.

So don’t be alarmed if your gross wages and your W-2 wages aren’t the same,  they’re calculated differently for tax purposes. 

When You’ll Get Your W-2

By law, employers must send out W-2 forms by January 31st each year. You’ll usually receive it by mail or electronically through your employer’s payroll portal.

At Dominion Payroll, print W-2s will be delivered directly to employees. Be sure to review employee data, including mailing address, and final entries before the W-2s hit mailboxes. 

Please Note for Dominion Payroll Clients: Print W-2s will be delivered directly to your employees, and the return address will be your company's year-end address. Review employee data and final entries before the W-2 hit mailboxes. If the address needs to be updated, contact our Customer Support team at customerservice@dominionpayroll.com 

How to Use Your W-2

Once you have your W-2:

1. Review it carefully for accuracy (especially your name and Social Security number).

2. Use it to complete your federal and state tax returns.

3. Keep a copy for your records in case of an IRS audit.

If something looks off, for example, wages don’t align with your pay records, contact your employer’s payroll or HR department right away.

Final Thoughts

Your W-2 is more than just a tax form,  it’s a year-end snapshot of your earnings, benefits, and tax contributions. By understanding what each box means, you can file your taxes with confidence and avoid surprises.

As payroll experts, we always recommend reviewing your pay stubs throughout the year so that when your W-2 arrives, you already know what to expect.