Form W-2
Form W-2 (Wage and Tax Statement) is the IRS form that employers are required to send to each employee and to the IRS by January 31 each year, reporting the employee's annual wages and the federal, state, and other taxes withheld from their paychecks. Employees use the W-2 to complete their federal and state income tax returns.
Form W-2 is one of the most foundational documents in the U.S. tax system. Every employer who paid wages to employees, withheld income taxes, or was required to withhold Social Security and Medicare taxes must provide W-2 forms. The form is issued in multiple copies: one for the employee to keep, copies for federal and state filing, and a copy to the Social Security Administration (SSA), which uses the data to track earnings for Social Security benefit purposes.
Box 1 of Form W-2 shows total taxable wages, which includes salary, bonuses, taxable fringe benefits, and certain employer-provided benefits. Box 2 shows federal income tax withheld. Boxes 3 through 6 show Social Security and Medicare wages and the taxes withheld. Box 12 contains a variety of coded entries that report specific compensation items, such as contributions to a 401(k) plan (Code D), employer-sponsored health coverage costs (Code DD), and nonqualified deferred compensation (Code Y or Z).
For investors who are also employees, the W-2 is the starting point for Form 1040. Wages from Box 1 are entered directly as ordinary income. Withholding from Box 2 is credited against the tax owed for the year. State and local tax information in Boxes 15 through 17 flows to the state return.
Employees who receive restricted stock units (RSUs) or exercise nonqualified stock options (NQSOs) will see supplemental wages included in Box 1 of their W-2 in the year of vesting or exercise, reflecting the ordinary income component of these compensation arrangements. This income is subject to FICA taxes as well as income tax withholding. The cost basis of shares received through RSU vesting or NQSO exercise is typically the fair market value included in W-2 income — a critical figure for accurately reporting subsequent capital gains or losses when the shares are sold.
Employers must generally provide W-2 forms to employees by January 31. The IRS also receives copies electronically. If an employee believes their W-2 is incorrect, they can request a corrected W-2 (Form W-2c) from their employer. If the employer fails to provide a W-2 or refuses to issue a corrected form, taxpayers can file Form 4852 (Substitute for Form W-2) with their tax return.
For 2025, the Social Security wage base is $176,100. Wages above this threshold are not subject to the 6.2% employee Social Security tax (though all wages remain subject to the 1.45% Medicare tax, and wages above $200,000 are also subject to the 0.9% Additional Medicare Tax withheld only from employee wages).