Become a member. Not only you succeeded in passing final exams, found yourself a job and survived the first week there when you were unable to remember your charger for a laptop. It is time for something far more frightening – understanding the W-2. Although it may seem to be some kind of a ransom note from IRS it is nothing but an adult receipt.
Box 1 is where it all starts. The number here shows your taxable income. It is the amount of money that the government is interested in and it is smaller than your salary because of 401(k) contribution from it. That means that the number in this box will decide if you owe or will get the refund of your money.
Box 2 is your “refunds fuel”. The number in it shows the amount of federal tax that was taken from your salary. The larger it is the more cash you are likely to receive in April. The smaller it is – the best way to start saving.
Boxes 3 and 5 show your mandatory contribution to the state. The first one is the Social Security tax, and the second – Medicare tax. Regardless of your attitude towards these taxes, they are mandatory and guarantee you that you will get a little money when you become 70 and cannot purchase food in space anymore.
Boxes 12 and 14 show your 401(k) contribution and the amount of health insurance premium you are paying. This part may contain some cryptic letters and numbers but just use the legend below.
As it should be clear by now W-2 is not meant to confuse you on purpose. It is an extended receipt showing the amount of government’s take from your salary. So fill in your tax returns without hesitations.