Definition
A W-2 is the form employers issue to report an employee's annual wages and the taxes withheld.
How It Works
Employers send a W-2 to each employee and to the IRS, showing wages, federal and state withholding, Social Security and Medicare taxes, and certain benefits. Employees use it to file their return.
Example
An employee receives a W-2 each January showing the prior year's wages and withholding to use in preparing their return.
Who It Applies To
Employees.
Watch-Outs
W-2 income offers fewer planning levers than business or investment income, which is why high earners with only W-2 income often look to real estate or retirement strategies to reduce taxes.
