Understanding Your W-2, Part 2

This is part 2 of a series explaining the boxes that appear on your Form W-2.

In Part 1, I looked at Boxes 1-8.  Now we'll start with Box 9:

Box 9 (advance Earned Income Credit):  Certain taxpayers who qualify for the Earned Income Credit have been able to take the credit in advance on their paychecks.  Starting in 2011, this option is no longer available, so Box 9 will be something else going forward (on the draft 2011 W-2, Box 9 is "grayed out").

Box 10 (dependent care benefits):  This box reports amounts you deferred into a cafeteria plan for daycare expenses.  It also reports the amount of daycare expenses your employer paid on your behalf.

Box 11 (nonqualified plans):  This box reports amounts distributed to you from a "nonqualified plan" and from non-governmental 457(b) plans.  Nonqualified plans are deferred compensation plans that generally benefit key executives and are not required to meet the "non-discrimination" requirements that a 401(k) plan has to meet.

Box 12:  This box reports any number of transactions, but for most people this box will include salary deferrals into a 401(k) plan (shown as "Code D")  This box may also include moving expenses reimbursed by your employer, and adoption benefits received during the year.  In total, there are approximately 25 different letter codes that could be shown in Box 12, but again, the most common will be Code D for 401(k) deferrals.

Box 13:  If you participated in an employer-provided retirement plan such as a 401(k), the "Retirement Plan" box will be marked.  If this box is marked, it means the amount of deduction you can take for contributions to an IRA is limited.  The "statutory employee" box will be marked if you are treated as an independent contractor under common law, but are treated as an employee for Social Security tax purposes (that's the very short and sweet definition!).  The "Third-Party Sick Pay" box will be marked if the W-2 is reporting sick pay received from someone other than your employer.

Understanding Your W-2, Part 1

If you haven't received your W-2 yet, you should be soon.  This is the first in a several-part series where I go line-by-line through a Form W-2, so you understand what you are looking at.

Line 1 (wages, tips and other compensation):  This is the amount of your gross income that is reported on Line 7 of your Form 1040.  For many employees, this will be your gross wages minus contributions to a 401(k) and cafeteria plan.  Someone whose employer-provided health insurance includes a same-sex partner will see the value of that insurance added into Line 1.

Line 2 (federal income tax withheld):  Self-explanatory.  The amount of federal taxes withheld from your paycheck during the year.

Lines 3 and 5 (Social Security wages / Medicare wages):  The amount of wages subject to the 6.2% Social Security tax and 1.45% Medicare tax.  Contributions to a 401(k) plan are taxed for Social Security and Medicare purposes.  For some people, these two boxes might be different, because only the first $106,800 of wages are taxed for Social Security purposes, but all wages are taxed for Medicare purposes.

Lines 4 and 6 (Social Security / Medicare tax withheld):  The amount of Social Security and Medicare taxes withheld from your paycheck during the year.

Box 7 (Social Security tips):  For people who receive tip money, this reflects the amount of tips you reported to your employer.

Box 8 (allocated tips):  This box is a little strange.  For restaurant workers, it reflects the difference between what you reported as tip income to your employer, and 8% of the restaurant's income.  That is a very general explanation.  If your W-2 shows an amount in Box 8, you probably want to seek the advice of a tax professional because you may have to file a Form 4137.