Income
W-2 Income: Definition & Example
What Is W-2 Income?
W-2 income is wages paid to an employee and reported on IRS Form W-2, with income and payroll taxes withheld by the employer before the employee is paid.
What does W-2 income mean?
Employers send Form W-2 to each employee by the end of January. It reports the prior year’s wages and the taxes withheld, including federal income tax, Social Security, and Medicare.
W-2 income is usually the easiest income to document. The employee has regular pay stubs, a W-2 each year, and consistent payroll deposits. Employers can also confirm employment and pay through a verification of employment.
W-2 income is different from 1099 income, which is paid to independent contractors without tax withholding. Many people have both, such as a salaried employee with a side business.
W-2 income example
A nurse’s W-2 shows $78,300 in box 1 wages for last year. Her pay stubs show a steady biweekly paycheck, and her bank account receives matching payroll deposits labeled with the hospital’s name every other Friday.
Related terms
- 1099 Income1099 income is money paid to independent contractors, freelancers, and other non-employees, reported on an IRS Form 1099 without income tax withheld by the payer.
- Pay StubA pay stub is a document that accompanies a paycheck and itemizes the employee’s gross pay, taxes, deductions, and net pay for the pay period and year to date.
- Payroll DepositA payroll deposit is an employee’s net paycheck sent electronically by an employer or payroll provider into the employee’s bank account, usually through the ACH network.
- Verification of EmploymentVerification of employment (VOE) is the process of confirming with an employer, or a database of payroll records, that a person works there, along with details like job title, start date, and sometimes pay.
- Gross Monthly IncomeGross monthly income is the total amount a person earns in a month before taxes, retirement contributions, insurance premiums, or other deductions are taken out.
