What Is the Purpose of IRS Form W-2?

The purpose of Internal Revenue Service Form W-2 is to track payments made by employers to employees so the agency can collect the appropriate amount of income and payroll taxes from the parties involved. Every employer engaged in a trade or business must file a Form W-2 every year for every employee paid $600 or more in annual total cash or noncash compensation, as explained by the IRS.

An employer prepares six copies of Form W-2 for each employee. Copies go to the IRS, the U.S. Social Security Administration and any applicable state, city or local tax department, states Forbes. The form details the employee's important personal and financial information, including total taxable compensation, the total amount of federal, state and local income taxes withheld from the employee's pay during the year, the total amount of wages subject to Social Security and Medicare taxes, and how much was withheld.

Both employers and employees must supply W-2 information to the IRS by certain deadlines each year. The employer has a deadline for preparing the form, while the employee has a deadline for completing the federal income tax return. This system of dual reporting ensures the IRS can double check that income was reported and the appropriate taxes paid, explains the IRS