The purpose of the W-2
Form W-2, Wage and Tax Statement, is the annual reconciliation of everything that happened on your paystubs during the calendar year. Your employer files it with the Social Security Administration (which forwards a copy to the IRS) and sends you copies for filing your own tax returns.
The employer must send Copy B (federal), Copy C (records), and Copy 2 (state/local) to you by January 31 of the year following the tax year. If January 31 falls on a weekend, the deadline is the next business day.
The most important boxes
• Box 1: Wages, tips, other compensation — taxable wages for federal income tax. This is gross earnings minus pre-tax deductions like 401(k) and health premiums. It is usually less than the YTD gross on your final paystub.
• Box 2: Federal income tax withheld — the total FIT from all pay periods.
• Box 3: Social Security wages — wages subject to OASDI, capped at the annual wage base ($176,100 for 2025).
• Box 4: Social Security tax withheld — Box 3 × 6.2%.
• Box 5: Medicare wages and tips — all wages subject to Medicare, no cap.
• Box 6: Medicare tax withheld — Box 5 × 1.45%, plus 0.9% on wages over $200,000.
• Box 12: Codes for specific items like 401(k) contributions (Code D), Roth 401(k) (Code AA), employer-sponsored health coverage (Code DD).
• Boxes 15–20: State and local wages and taxes.
W-2 vs 1099
A W-2 is for employees — people whose employer withheld taxes, paid the FICA employer match, and controlled how and when they work. A 1099 is for independent contractors — self-employed people who received payments without tax withholding and must pay their own SECA and estimated taxes.
The distinction matters: employees get W-2s and no self-employment tax; contractors get 1099s (usually 1099-NEC) and owe 15.3% self-employment tax on top of income tax. Misclassification is a common source of IRS penalties for the payer.