W-2 Tax Form Data Extraction
Author: Ernest Semerda
W-2. It’s that time of the year. Tax season! Running accounting software is fun and rewarding when your customers are happy but also challenging when the request to automate the boring and tedious data extraction is brought up.
Customers hate doing data entry and will often expect you to do it for them. The burden of doing this manually or building out a team to do it is too much for most customers.
That’s where Veryfi comes in.
Veryfi’s OCR API can identify all the data points on all variations of W2s using AI and extract the data as a JSON which your software application can consume in seconds.
Form W-2, or ‘Wage and Tax Statement’ is the form an employer generates after the calendar year is over. The form summarizes the different categories of compensation the employee received during the year. All amounts paid are included in the W-2, including non-cash payments and taxes, paid by the employer on behalf of the employee to Federal and local Governments, along with every mandatory insurance deduction the employer paid, such as Social Security or Medicare.
The Form was introduced in the mid-1940s and the current form is unchanged since the late 1970s. Yes, it is almost 80 years old and hasn’t changed in more than 40 years! What also didn’t change is the need to capture the different amounts from the different fields and copy them, either by typing or by hand, into the annual tax return (Form 1040). In a household, we will find one or more W-2 forms, (if changing workplaces during the year, adding a part-time position, or multiple wage earners), all needing to be transcribed accurately to the tax return reports, increasing the likelihood of typos or oversights, which will cause delays in processing and any tax returns to which the employee is entitled.
Each W-2 form is filed with the Internal Revenue Service (IRS) by the employer. It is a copy of the exact same form that the employee will receive. The employer will use it to report Federal Insurance Contribution Act (FICA) payments made on behalf of the employees.
When an employee joins a new workplace, the same information provided on their W-4 will be used for Form W-2 and will indicate to the employer the different amounts to withhold for Federal Taxes and Local Taxes, based on marital status, dependents, allowances, and other factors.
Form W-2 lettered fields will include the employee’s personal information, including legal name, physical address, and social security number. The Employer’s information will include the employer’s legal name, address, Employer Identification Number (EIN), and State ID Number. The numbered fields will be separated into Gross Salary earned (the base to the Tax and Social Security withholding), Medicare wages, and Medicare tax withheld. Box 12 will contain special programs, 401(k), HSA, FSA, and other non-taxable expenses. Exactly as described for the federal salary and tax withholding, the last 5 fields will be for the state and for the local tax offices.
The amounts the employer withheld and paid in the name of the employee will be the base of calculation towards the employee’s tax liability – if the obligation is higher than what was paid, there will be an additional liability. If the obligation is lower than what was paid, the employee will be entitled to a tax return.
When receiving the form, employees usually receive multiple copies. Copy B will be used for the federal tax return, copy 2 (or multiple copies), will be used to file state and local tax returns. Copy C is usually kept by the employee, for future reference or audit.
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No humans. Zero. With W-9 forms we’re dealing with PII data, after all, and using humans rather than machines is not only less secure but also breaches trust with your customers.
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