Finance 101 – Ever looked at a tax form and had no idea what to do next? Doing your taxes or preparing documents so your employees can do theirs is complicated at best.
However, everyone has to get their taxes done, so knowing a little finance 101 can go a long way. Read on to find out more about the W2 tax form!
A W-2 tax form is not as complicated as it may look. If you have had regular employment during a year, you will receive a W-2 from your employer showing your yearly wages and the amount removed for taxes.
If you are learning about small business finance because you run your own business and employ others, you will need to create a W2 to report your taxes and those of your employees.
The W-2 shows the employee how much money they have made to report on their taxes, as well as how much they have already paid in taxes that were withheld. This form officially shows the IRS how much your employees made over the previous year for the record so that taxes and compensation can be properly calculated.
If you’re new to filling out your own taxes and need a little personal finance 101, you will be receiving a W-2 for the previous year’s wages. A W-2 received in 2020 will show the wages earned in 2019. And if you are a contract worker or self-employed, you will use different forms to report income.
If you are an employer, you will need your employees’ W-2s to report income throughout the year for Federal Contributions Act taxes, and then send them with W-3s to the Social Security Administration in January. This allows your employees to receive the proper social security benefits and compensation for paying taxes if necessary.
The W-2 tax form has state and federal information since you pay taxes at both levels. It shows your total annual income, as well the amount withheld for taxes.
It will also include basic information like the employer’s federal ID (EID) and the employer’s state ID. There is also a box showing if you worked for and received tips at your job.
The W-2 helps the IRS calculate if you owe any taxes or if you need a refund based on the amount you made over the year and the amounts withheld for the social security tax, federal income tax, and more.
This form also helps the IRS in certifying you are being paid the actual amount reported. If an income amount in the W-2 doesn’t match those on the taxes, you could experience a tax audit to clear up the discrepancy.
When you begin a job, you fill out a W-4, which begins the process of showing how much should be withheld in taxes. If you’re a contract worker, that form is a W-9. If you are a student, come tax season, you will receive a 1098-E statement to show loan payments and a 1098-T showing tuition costs, which could help you get a deduction or tax credit.
Doing your taxes doesn’t have to feel like an impossible task you keep putting off. By getting some finance 101 basics down and learning the forms to be familiar with, you’re on the right track to better-taking care of your money, earnings, and welfare.
Was this helpful in clarifying the W-2 tax form and other finance terms? Check us out for more good business tips.
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