Every January, your employer sends you a W-2 form. You glance at it, see a bunch of numbers in boxes, and immediately feel confused. Box 1 doesn’t match your salary. Box 2 is way more than you remember paying in taxes. Box 12 has weird codes like DD and W.
And you have no idea what any of it means.
So you just hand it to your tax preparer (or plug it into TurboTax) and hope for the best. But understanding your W-2 is actually important. It shows what you earned, what you paid in taxes, and whether your employer is withholding correctly.
Let me walk you through it, box by box.
The Basics: What is a W-2?
A W-2 is a Wage and Tax Statement. Your employer is required to give you one by January 31 every year if you earned more than $600. It shows:
• How much money you earned
• How much federal, state, and local tax was withheld
• How much you contributed to Social Security and Medicare
• Other deductions like health insurance, retirement contributions, etc.
You need this form to file your taxes. The IRS gets a copy too, so the numbers on your W-2 better match what you report on your tax return.
Box by Box Breakdown
Box 1: Wages, tips, other compensation
This is the big one. It’s your total taxable wages for the year. This includes your salary, bonuses, and tips, but it does NOT include pre-tax deductions like 401(k) contributions or health insurance premiums.
Why Box 1 is less than your actual salary: If you earned $60,000 but contributed $5,000 to your 401(k), Box 1 will show $55,000. That’s because 401(k) contributions are pre-tax, so they reduce your taxable income.
Box 2: Federal income tax withheld
This is how much federal tax your employer took out of your paychecks throughout the year. When you file your return, this amount gets credited toward what you owe. If Box 2 is higher than your actual tax liability, you get a refund. If it’s lower, you owe more.
Box 3: Social Security wages
This is the amount of your wages subject to Social Security tax (6.2%). For most people, this matches Box 1. But if you earn over $176,100 (the 2025 cap), this will be capped at that amount.
Box 4: Social Security tax withheld
This is the amount of Social Security tax withheld (6.2% of Box 3). For 2025, the maximum is $10,918. If you worked two jobs and both withheld Social Security tax, you might have overpaid and can claim a credit.
Box 5: Medicare wages and tips
This is your total wages subject to Medicare tax (1.45%). Unlike Social Security, there’s no cap. All your wages are subject to Medicare tax.
Box 6: Medicare tax withheld
The amount of Medicare tax withheld (1.45% of Box 5). If you earn over $200,000, you also pay an additional 0.9% Medicare tax.
Box 7: Social Security tips
If you’re a tipped employee (server, bartender, delivery driver), this shows tips you reported to your employer that are subject to Social Security tax.
Box 8: Allocated tips
This applies to large food/beverage establishments. If your employer allocates additional tips to you because total reported tips were too low, they show up here. (Most people can ignore this box.)
Box 10: Dependent care benefits
If your employer provides dependent care assistance (like a childcare FSA), the amount shows here. Up to $5,000 is tax-free; anything over that is taxable.
Box 12: Codes
This box is where things get confusing. It contains letter codes that indicate various types of compensation or deductions. Here are the most common:
• D: Your 401(k) or 403(b) contributions
• DD: Cost of employer-sponsored health coverage (informational only, not taxable)
• W: Employer contributions to your Health Savings Account (HSA)
• AA: Roth 401(k) contributions (after-tax)
• BB: Roth 403(b) contributions
• C: Taxable group-term life insurance over $50,000
Most of these codes are informational. Code D (401k contributions) is useful because it shows how much you saved for retirement.
Box 13: Checkboxes
• Statutory employee: Special status for certain salespeople and agents
• Retirement plan: Checked if you were eligible for a 401(k) or similar plan, even if you didn’t contribute
• Third-party sick pay: Checked if you received sick pay from a third party (like an insurance company)
Box 14: Other
This is a catch-all for anything that doesn’t fit in other boxes. Common items: union dues, state disability insurance, uniform costs. Your employer decides what goes here.
Boxes 15-20: State and local taxes
• Box 15: Your employer’s state and state tax ID
• Box 16: State wages (usually matches federal wages in Box 1)
• Box 17: State income tax withheld
• Box 18: Local wages
• Box 19: Local income tax withheld
• Box 20: Locality name
Common Questions About W-2s
Why is Box 1 different from my salary?
Pre-tax deductions (401k, health insurance, HSA) reduce Box 1. So if you earned $70,000 but had $10,000 in pre-tax deductions, Box 1 shows $60,000.
What if my W-2 is wrong?
Contact your employer immediately. They need to issue a corrected W-2 (Form W-2c). Don’t file your taxes with a wrong W-2 or the IRS will flag it.
I worked two jobs. Why do I have two W-2s?
Each employer issues a W-2. You report both on your tax return. If both employers withheld Social Security tax and your combined wages exceed $176,100, you might have overpaid Social Security and can claim a credit.
What if I didn’t get a W-2?
Employers must send W-2s by January 31. If you don’t receive it by mid-February, contact your employer. If they won’t send it, contact the IRS at 800-829-1040.
How to Check If Your Withholding is Correct
Your W-2 can tell you if you’re having the right amount withheld from your paychecks. Here’s how:
• If you always owe money when you file: You’re not withholding enough. Adjust your W-4.
• If you always get huge refunds ($3,000+): You’re withholding too much. You’re giving the IRS an interest-free loan. Adjust your W-4.
• Ideal: Small refund ($500 or less) or small amount owed ($500 or less).
Need Help?
At LMN Tax, we help Northern Virginia workers understand their W-2s, optimize their withholding, and make sure they’re not overpaying or underpaying taxes. Call us at (571) 326-7900.
Resources
IRS W-2 Instructions: https://www.irs.gov/pub/irs-pdf/iw2w3.pdf
IRS Tax Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator