What is the purpose of W-2 forms?

• A. To report non-wage income
• B. To document an employee’s annual wages and taxes withheld
• C. To summarize business income and expenses
• D. To gather information for state taxes

Answer: (B)

The purpose of W-2 forms is to document an employee’s annual wages and taxes withheld by the employer. Employers are required to provide these forms to their employees by January 31 of each year. The W-2 outlines the total wages earned by the employee during the tax year, as well as the federal, state, Social Security, and Medicare taxes that have been withheld from their earnings. This information is crucial for employees when they are preparing their annual tax returns, as it is used to report income and calculate tax liabilities.

While non-wage income reporting, business income and expenses summaries, and state tax information gathering are important for tax reporting purposes, those functions are served by different forms, such as the 1099 series for non-wage income or business income statements for self-employed individuals. The W-2 specifically focuses on the employment relationship and the financial transactions between employer and employee regarding wages and withheld taxes.