 In this presentation we will take a look at Form W3 and Form W2. Here's a copy of a Form W2 from the IRS website which you can find at irs.gov. This is just a demonstration form and of course the W2 is a form that most of us are most familiar with, a form that we see, a form that we get as employees at the end of the year, a form that tells us how much we've earned and the withholdings we have so that we can then use it in order to fill out our responsibility, our individual form, 1040 at the end of the year. If we go through this from an employer standpoint it's important to note what the form W2 is saying to us and what they're doing on their side. One, it is of course reporting to us our wages and what was withheld from us and therefore a form that can be used to fill out our tax return. That's one major purpose of the form. It's also a form that they're going to be sending not only to us but to the IRS and that's important to note as well because the IRS is really not dependent on us to report our information in this case. For the W2 they already have it. They have a copy of the W2 which is given to them by the employer. It's required to be given to them by the employer. So whenever you get a W2 and a 1099 for the same which is similar you got to note that this is not only telling us what we've earned it's also telling us hey this information is reported in this format to the IRS. If you report something differently even if you believe it be correct as different you're going to have an issue with it because the IRS is really just matching what you report to what we report here. So that's the first thing to note with the W2 that we want to make sure that we have a good understanding of. If we go through the components of the W2 we of course have the employer identification number the EIN number needs to be recorded every time we have some type of payroll information for the IRS. We got the employer's name address we've got the control number then we have the employees first name and initial last name and the employee's address then we go through the points where we will spend most of our time looking at the actual reporting of the numbers we're most familiar probably with the first box which is wages tips and compensation note that this box however is not the best representation of total wages because it will be reduced by things such as a 401k plan and possibly a cafeteria plan. So when we look at the total wages when we try to say how much do we earn throughout the year most of us will go here and look at box one but it's not the best representation because it's probably lower than what our total earnings are because they've been reduced for the calculation of taxes by things that are not including the gross income for tax calculations. So we'll look a little bit more at that when we put the numbers here in box two of course is the federal income tax withheld we have withheld taxes it's been withheld from us meaning we've made payments throughout the year for the employee now we didn't actually write the check but the employer was responsible for taking the money out of our wages and paying for us then we have the social security wages and this could differ them from line one and it could differ based on hitting a cap for social security and it could differ based on something like a cafeteria plan then we've got the social security tax withheld and then we have the Medicare wages so the Medicare wages could differ from lines one and three based on one if there's kind of a cafeteria plan and two there's no cap so this one line five is probably the closest to our actual wages of the three wage categories so if we're going to look at the w2 and try to figure out what we actually got paid what we're actually earning line five might be the best or closest to it still might be low by say the cafeteria plan if there is one and then we have the Medicare tax and then we have the social security tips well we're not going to get into too much of this allocating tips what we won't be dealing with tips here a verification code dependent care benefits uh non qualified plans and then the uh the whether or not we have a retirement plan here so line 13 is whether we have a retirement plan uh box 12 we're going to go over some of the things that could be exempt typically are kind of things that could be in box 12 including things like a retirement plan that would be coming out of box one and a reason that box one would differ than say box five and we could have a cafeteria plan that would be reducing pretty much all three of these items if it was qualified to do so that we would indicate down here that would be an informational format or informational purposes down here then we've got the employer state id number which we're not going to spend time with here because it will differ from state to state but then we have the state wages state income tax whatever the state law is and it could mirror the format that the fed has or it may be typically a little bit more simplified than the fed uh so it could probably be similar or possibly more simplified simplified sometimes but it changes from state to state and then local wages and local taxes note the w3 in essence has the same stuff here so we've got lines 135 246 wages social security wages medicare and then federal income tax f it social security tax and medicare tax and that's because the w3 will just be summing up all the w2s so if you think of all of our employees like as one big like conglomerate thing of an employee then they then the w3 would basically be reporting all of their stuff all of their wages in one group so it's going to sum up in other words the w2s so that's mainly what we want to get on the w3 i'm just going to leave the w3 at that we'll do a little bit of a calculation for this now if we had the earnings records for in this case for employees here anthony sindy jeal and judy then we're going to take this data and create the w2s from it so this earnings record will have one for andy we got the total earnings we've got the oast i earnings which in this case are going to be the same except for uh judy which differs because judy reached the cap and the cafeteria plan is not there's no cafeteria plan reducing these so they're the same for our and other employees then we've got the futa wages which isn't going to be on futa is not on the w2 because it's an employer uh tax suta as well futa and suta and then we got the oast i we got the actual amounts that were taken out of each employee's uh checks and then we've got the hi medicare taken out of the each employee's checks and fit the amount taken out of each employee's checks uh insurance which is not a cafeteria plan not qualified to reduce uh the net income taken out and then union dues and the 401k which will be uh reducing federal income tax and then the net pay so these are our totals we're going to then go through each of the w2s pretty quickly so here's just a copy of the w2 that's kind of like a simulation form and we would take that information and fill out box one wages and compensation which would differ in this case from uh box three is different from box three in this case from the retirement plan that was here so the difference between the 2008 12 50 and the 19 7 16 uh 96 85 can be seen in 12 a indicated by a code which should be the retirement plan and it's also indicated here that we have a retirement plan now if there was a a qualified cafeteria plan it could be down here with a dd which would which would be just an informational piece as well but ours isn't a cafeteria plan it's just a note that uh and then we so we've got the social security and then we've got the medicare wages these two are the same because this employee hasn't hit the cap and therefore these two will be the same note that this number is probably closest to the actual earnings of this employee then the federal income tax is based on on these wages the social security is based on these wages note the f it can't be derived directly from these wages because uh it depends on the amount of exemptions and all that which we'll be calculating on the form 1040 this one however should be a flat tax so we can actually see that the 20 the 2008 12.5 times 0.062 is this 1002 90 and we can see that this 20000 for medicare times 0.0145 should be the 103 78 so these two we can actually recalculate this one we cannot and so that's going to be the first employee second employee similar we've got the wages in box one differing from box three for social security and medicare because box one is being reduced by the 401k plan which we can see in box 12 a then social security and medicare will be the same because this employee did not reach the cap f it federal income tax being calculated based on box one but we can't see a direct link because of the complexity in the f it federal income tax social security 6.2 percent medicare 6.2 percent of box three and box five respectively same thing for our third employee box one differing from box three due to the retirement plan in box 12 and it being the box three same as box five because this employee didn't match the cap same calculations box two four and six then our last employees a bit different and this is our high earner here this is Judy Jones she has wages in box one differing from box three social security wages differing than total compensation one because box one has the 8750 for the amount that was in the retirement plan but also because she hit the cap which is at 128 400 so if we start to see higher wage individuals this one's just going to stop at whatever the cap is in this case it's 128 400 so notice of these three numbers they're all differing the medicare is probably the closest to what the actual earnings are because the medicare does not have a cap and is not being reduced by something like the 401k or retirement plan then if we were to add all those up then this would be box one wages if we were to add up all four boxes for our four employees this would be box three wages social security wages for four employees medicare wages for four employees federal income tax for four employees which cannot directly be tied to this number because it's too complicated social security however and medicare can be calculated on a total basis as well meaning the 194 606 times 0.062 gives us the 12,065 57 and if we were to take the 241 206 times 0.0145 we get the 3,497 there so these two we can calculate because they're nice flat taxes accounting I don't know anyone in accounting