What is the purpose of Form W-2?

Form W-2 serves as a crucial document in the process of reporting wages and tax withheld by employers. Each year, employers are required to issue a Form W-2 to each employee who has received taxable wages during the year. This form provides detailed information, including the total amount of wages earned and the taxes that have been withheld for federal, state, and other local taxes.

The significance of Form W-2 lies in its role in ensuring that employees accurately report their income on their individual tax returns. It acts as a summary of an employee's earnings and the taxes that were deducted, which is essential for completing Form 1040 or other individual income tax returns. This helps eliminate discrepancies in reported income and tax obligations.

The other options refer to different tax forms or concepts. Individual income tax returns are reported on forms like the 1040, self-employment income is typically reported on Schedule C, and capital gains are reported on Schedule D or through other specific forms for reporting investment income. Form W-2 focuses specifically on the employment relationship and the wages paid to employees, thus solidifying its purpose as a report of wages and tax withheld.