Starting a first job means you may be opening a bank account for the first time. It also means learning how to budget your paychecks. And of course, you also have to file your taxes.
One of the forms you’ll need to file your taxes is your W-2. Employers mail these forms out at the beginning of the year.
If you’re waiting on yours to hit your mailbox or you’ve already received your W-2, here’s what you need to know about how to decode it.
What Is a W-2 Anyway?
In a nutshell, your W-2 is a statement of wages earned and tax withheld.
“It’s essentially a standardized form that states what you’ve made this year from your employer and the amounts of federal income tax, social security tax and Medicare tax that were withheld from your wages,” says Dane Janas, an IRS-licensed enrolled agent, and the owner and CEO of Boundless Tax.
Aside from that, your W-2 also includes information about state and local taxes that were withheld from your wages, as well as amounts you paid for health insurance premiums, retirement plans and other benefits offered by your employer.
The IRS requires employers to provide copies of W-2s to employees by January 31st of each year. Employers have to send paper copies in the mail, though some may also offer a digital copy to employees.
How to Read Your W-2 to File Taxes
The IRS has a standard form for issuing W-2s. This form has a series of lettered and numbered boxes where your relevant tax information is entered. That includes:
- Your social security number
- Your first and last name
- Your address
- Your employer’s federal and state identification numbers, name and address
- Wages earned for the year
- Federal income tax withheld
- Social security and Medicare wages
- Social security and Medicare taxes withheld
- Dependent care benefits
- State wages earned
- State taxes withheld
- Local wages and income tax withheld
Here’s what a sample W-2 looks like:
When reading your W-2 to file taxes, the first thing you should do is make sure all the information is correct.
Janas says the easiest way to do this is to compare your W-2 to your last paystub of the previous year.
“The year-to-date amounts on your paystub should be very similar to, if not the same as, the amounts reported on your W-2,” he says.
There’s a good reason to make sure your wages and withholdings are accurate.
When you file your taxes, these numbers – along with your filing status and deductions – are used to determine how much tax you still owe for the year or whether you’ll get a tax refund. If your W-2 is showing that you make more money than you actually did or the withholding amount isn’t correct, this could mean a surprise tax bill.
You also need to make sure the name and social security number listed on your W-2 are correct. The personal information on your W-2 should be the same as what you enter on your tax return.
Once you begin filing your taxes, you’ll simply plug in the information from each box on your W-2 into your return. If you’re using an online tax filing software, this can be fairly easy to do. In fact, some tax prep software programs allow you to import your information from your W-2 automatically.
What If There’s an Error on Your W-2?
Finding a mistake on your W-2 could delay your tax filing but don’t panic. You just have to get a corrected W-2 from your employer.
“If you think there’s an error on your W-2, first go to your employer’s payroll department,” Janas says.
“If it truly is an error, like a miscalculation or an incorrectly-entered social security number, they will issue a corrected W-2.”
This ensures that the social security administration and the IRS also have the correct tax information on record for you. Filing your return with an incorrect W-2 could result in headaches later on if the IRS catches the error. You might end up owing more in taxes. Worse yet, you may be subject to an audit, which isn’t something you want to deal with as a first-time filer.
Getting W-2 errors corrected isn’t something you want to drag your feet on, says Andrew Chen, founder of personal finance website Hack Your Wealth.
“Don’t wait until the tax filing deadline to do this. Otherwise, you may have to file an extension or if you’ve already submitted your tax return, you may have to file an amendment, which is a pain,” says Chen.
When a W-2 Doesn’t Show Up
Employers are required to send out W-2s at the end of January, but things don’t always go like clockwork.
For example, your W-2 could get lost in the mail. Or, your employer may be behind on getting forms out.
Chen says that if you haven’t received your W-2 by mid-February, it’s a good idea to reach out to your company’s finance or accounting department to request it. This can help you get the ball rolling on filing your taxes.
If it doesn’t show up, you can still file your taxes but this can be time-consuming, since it usually involves sifting through your pay stubs to find the correct income and withholding information to plug in, according to Chen.
Just make sure you file your taxes, no matter what.
“The downside to not filing if you don’t receive your W-2 is a failure-to-file penalty from the IRS,” Janas says.
“Trust me, this is a huge downside.”
The failure-to-file penalty kicks in when you don’t file your return by the April tax filing deadline. This penalty is 5% for each month your return is delayed. And if you owe taxes, you’ll be charged a separate failure-to-pay penalty, not to mention interest on what you owe.
Bottom line? File your tax return on time.
Are You Ready to File Your Taxes for the First Time?
Filing taxes can be a little intimidating when you’ve never done it before.
Whether you choose to DIY your tax filing with a software program or get help from a tax pro, make sure you’ve got your documents together.
Here’s a final pro tip: If you get a tax refund, use it wisely. This extra cash boost can be a great way to pay down debt or boost your savings account.
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.