W-2
Definition
The tax form your employer sends you each January showing how much you earned and how much was withheld for taxes during the previous year. It includes your gross pay, federal and state taxes withheld, Social Security and Medicare taxes, and retirement contributions. You need it to file your tax return.
Why It Matters
Your W-2 is the foundation of your tax return. If your withholding was too low, you'll owe taxes. Too high, you'll get a refund. Adjusting your W-4 (the form that tells your employer how much to withhold) can prevent surprises at tax time.
Example
Your W-2 shows $75,000 gross income, $12,000 federal tax withheld, $4,650 Social Security tax, and $1,088 Medicare tax. When you file, if you actually owe $11,000 in federal tax, you get a $1,000 refund. If you owe $13,000, you pay $1,000 more.