How Your W-2 Works

Breaking Down the Boxes

The form itself includes a series of boxes with information about the employer, the employee and, of course, the money. In addition to listing the employer's name, address and tax identification number, the form also lists the worker's name and contact information. It's important to make sure this information is correct: you don't want to be on the hook from someone else's tax bill [sources: IRS].

Then there's the really important stuff. The W-2 will tell you how much you made in wages, tips and other compensation over the course of the year. For tip earners, that figure will include the tips that you told your employer about. This amount doesn't include money that you were paid, but isn't yet taxable, such as earnings that go into a 401(k) or qualifying flexible spending plan. The form also includes wages and tip totals used for calculating the worker's Social Security and Medicare tax obligations. The Social Security amount is likely to be lower because only a portion of your earnings are subject to that tax [sources: IRS, TurboTax].

Finally, the W-2 will tell you how much your employer withheld from your regular paychecks in estimated taxes. The idea is to pay as you go, so that workers aren't stuck with a huge tax bill at the end of the year. Heck, you might even get a refund! If you aren't so lucky and wind up owing the tax man a significant chunk of change at the end of the year, you can always ask your employer to take out more money from your paychecks. Do that by reducing the number of the dependents that you claim on your W-4 or by simply listing the additional amount that you want withheld in line 6 of the form [source: TurboTax].