Form W-2, Wage and Tax Statement, is the IRS information return a US employer files and furnishes for each employee to report wages paid and the income, Social Security, and Medicare taxes withheld during the calendar year. It is the employee counterpart to Form 1099-NEC, which reports payments to an independent contractor.
Form W-2, titled “Wage and Tax Statement,” is the IRS information return a US employer files and furnishes for an employee to report annual wages and the taxes withheld from them. The IRS defines its title and purpose on the About Form W-2 page, which states that the form reports wages paid and taxes withheld for an employee. The employer files copies with the Social Security Administration and the IRS and gives a copy to the employee, who uses it to file a personal income tax return. The W-2 is the document that proves an employer treated a worker as an employee.
A W-2 shows, for one employee over one calendar year:
The Social Security and Medicare amounts are the employee side of FICA. The employer withholds the employee share, pays a matching employer share, and deposits both. The employee never sees the employer match on the W-2, but it is a direct cost of employing rather than contracting a worker.
The IRS states that every employer engaged in a trade or business who pays remuneration, including noncash payments, of 600 dollars or more for the year for an employee’s services must file a Form W-2. A W-2 is also required for any employee from whom income, Social Security, or Medicare tax was withheld, even if total pay was below that threshold. The forms are filed on the annual transmittal Form W-3 and are generally due by January 31 of the following year.
The W-2 and the Form 1099-NEC split along a single line: is the worker an employee or an independent contractor?
The deciding factor is whether the worker is a common-law employee. The IRS weighs behavioral control, financial control, and the type of relationship to make that call. The form is downstream of the classification, not the other way around. Issuing a 1099-NEC does not make a worker a contractor if the facts show employment.
Treating an employee as a contractor to avoid filing a W-2 is a costly mistake. If the IRS reclassifies the worker, the business can owe the unwithheld income tax, both shares of FICA, interest, and penalties. The W-2 is not a formality. It is evidence of the employment relationship and the taxes that relationship requires.
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A common-law employee is a worker whose business has the right to control what will be done and how it will be done, even if the worker has freedom of action. Under the IRS common-law rules the determination weighs three categories of evidence: behavioral control, financial control, and the type of relationship between the parties.
FICA is the federal payroll tax that funds Social Security and Medicare. On the employee side it is 6.2 percent for Social Security up to the annual wage base plus 1.45 percent for Medicare, for 7.65 percent total, and the employer matches each portion, so the combined rate is 15.3 percent. A 0.9 percent Additional Medicare Tax applies to high earners.
Form 1099-NEC is the IRS information return a US business files to report $600 or more of nonemployee compensation paid to a US independent contractor during a calendar year.
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