When onboarding new employees in California, one of the key tax documents they need to understand is the W-2 form. The IRS requires employers to provide this form to employees by January 31 each year, summarizing their earnings and tax withholdings for the previous year. Here’s how you can break it down for them.
What Is a W-2 Form?
A W-2 form, officially known as the (Wage and Tax Statement,) is a document that employers issue to employees that reports their total earnings and the amount of taxes withheld. This form is crucial for employees when filing their annual tax returns.
Why Is the W-2 Important?
Employees use the W-2 form to file their federal and state tax returns. It shows their total taxable income, Social Security and Medicare Wages and contributions, and any state and federal tax withholdings. Without it, they may not be able to accurately report their earnings or claim deductions and credits.
Comprehensive Overview of All Sections of the W-2 Form (Boxes 1–20)
Box 1 – Wages, Tips, and Other Compensation
Total taxable income for federal tax—net of pre-tax deductions such as retirement contributions and health benefits.
Box 2 – Federal Income Tax Withheld
Total federal income tax withheld based on the employee’s W‑4 elections.
Box 3 – Social Security Wages
Portion of wages subject to Social Security tax, capped at $176,100 for 2025.
Box 4 – Social Security Tax Withheld
Actual Social Security tax withheld (6.2% of Box 3), up to the wage cap.
Box 5 – Medicare Wages and Tips
Wages subject to Medicare tax (no cap).
Box 6 – Medicare Tax Withheld
Standard Medicare tax at 1.45% of Box 5, plus 0.9% Additional Medicare Tax on wages over $200,000.
Box 7 – Social Security Tips
Tips the employee reported that are subject to Social Security tax.
Box 8 – Allocated Tips
Employer-allocated tips are not included in Box 1, but the employee must report them.
Box 9 – Advance EIC Payments
Obsolete since 2010, this box is always left blank.
Box 10 – Dependent Care Benefits
Tax-free dependent care assistance up to IRS limits. Excess may be taxable and included in Box 1.
Box 11 – Nonqualified Plans
Distributions from nonqualified deferred compensation plans irs.gov.
Box 12 – Additional Compensation Information
Includes various items with IRS codes, e.g.:
A: Uncollected Social Security tax on tips
B: Uncollected Medicare tax on tips
C: Group‑term life insurance over $50,000
D: Elective deferrals to 401(k) plans
W: HSA contributions
DD: Cost of employer-sponsored health coverage.
Box 13 – Checkboxes
Indicates if the employee is a statutory employee, participated in a retirement plan, or received third-party sick pay.
Box 14 – Other
Employer-defined—often used to report items like CASDI, union dues, or union wage types.
Box 15 – State
Shows the state abbreviation (e.g., CA) where state tax was withheld
Box 16 – State Wages, Tips, etc.
State-taxable wages, which may differ slightly due to state regulations.
Box 17 – State Income Tax
State income tax withheld irs.gov.
Box 18 – Local Wages, Tips, etc.
Wages are subject to any local taxes (if applicable).
Box 19 – Local Income Tax
Local income tax withheld (if applicable).
Box 20 – Locality Name
Name of the city/town imposing local tax.
California-Specific Considerations
Employees working in California should be aware of the following:
California State Taxes:
Unlike some states, California has a state income tax, and the withheld amount will be shown in Box 17.
California State Disability Insurance (CASDI):
Some California employers include CASDI (California State Disability Insurance) in Box 14 for informational purposes, but this is not required by the IRS. Starting January 1, 2025, the SDI withholding rate increased to 1.2%, and the taxable wage ceiling was permanently removed, meaning all wages are now subject to SDI withholding. Any wages above that limit are not subject to CASDI withholding. These limits are updated every year by the California Employment Development Department (EDD).
No Local Taxes:
No Local Taxes: Unlike some other states, most California cities do not impose local income taxes, so Boxes 18, 19, and 20 are usually empty for California employees. However, these boxes may be used if the employee lives or works in a jurisdiction outside of California that imposes local taxes.
How to Access and Use a W-2 Form
Employees typically receive their W-2 electronically or via mail by January 31. They should:
Review it for accuracy.
Use it when filing their federal and state tax returns.
Contact their employer immediately if any errors are found.
Final Tips for Employers
Be proactive:
Educate employees early, especially those filing taxes for the first time.
Provide resources:
Offer links to the IRS website, the California Franchise Tax Board, and tax preparation assistance.
Encourage early review:
Employees should check their W-2 form as soon as they receive it to resolve any discrepancies before tax deadlines.
By explaining the W-2 form properly, you can help employees stay informed, avoid tax issues, and file their returns with confidence.
