W-2 Process

• Your employer is required to pay you wages for services rendered, and withhold federal taxes and (if applicable) state, city and local income tax from your paychecks. Your employer reports your total wages paid and taxes withheld for the year on your W-2. It also files your W-2 with the Social Security Administration. The SSA sends the information to IRS. The IRS matches the information received from the SSA with the W-2 data you send in when you file your tax return.
  
  

Filing Alternative

• The IRS allows you to use Form 4852 as a W-2 substitute when filing your tax return. You must list your wages, and Social Security and Medicare (FICA) wages, and taxes withheld on the form. You can use the year-to-date data on your last pay stub or ask your employer for a printout of the applicable wages. You can also estimate the information as accurately as possible.
  
  

Wage Calculation

• Your wages, as shown in box 1 of the W-2, includes your total taxable income. It is your total earnings before payroll deductions occur and the amount subject to taxation. If you are paid hourly, multiply your total hours worked for the year by your hourly rate to arrive at your annual wages. Include overtime, applicable. If you are salaried, multiply your salary per pay period by the number of pay periods in the year. A biweekly payroll, for example, has 26 pay periods and a semimonthly pay payroll has 24. Include bonuses or any other pay you have received, plus taxable fringe benefits, such as life insurance. Obtain a list of the company's taxable fringe benefits from your employer or human resources department.
  
  

FICA Calculation

• Box 3 of your W-2 shows your Social Security wages -- income subject to Social Security tax. Determine your Social Security wages the same way you figured your wages for box 1. However, the total amount should not exceed the annual wage limit -- $106,800 for 2010. It should either match this amount or the amount shown in box 1. Your Medicare wages, as shown in box 5, are those subject to Social Security tax. Medicare does not have an annual wage base. Therefore, your Medicare wages can exceed your Social Security wages.
  
  

Considerations

• Use your W-4 form and IRS Circular to determine federal income taxes withheld. To determine FICA withholding, calculate Social Security tax at 6.2 percent of your wages, up to the yearly wage limit of $106,800; and calculate Medicare tax at 1.45 percent of all your wages.