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The Wage and Tax Statement, commonly known as W-2, is a document in the United States that employees receive from their employers to file their taxes. It reports the annual income that employees receive from their organization and the amount of tax they are liable to pay. An employer is required to issue W-2 tax statements to every employee at the end of each year, and once the employees fill out these forms, they are sent to the Internal Revenue Service (IRS).
W-2 forms contain a wealth of information about an individual's income, employment status, certain financial aspects, etc. The form is divided into two sections — state and federal, as employees must file their taxes on both these levels. A W-2 contains a section about the employer, including the Employer Identification Number (EIN) and the state ID number. The other sections include details of the employee’s income from the previous year, information about their deductions, medical insurance, paycheck variations, social security number, dependent care benefits, etc.
The form records the employee’s total annual income and the tax liability for that amount. This payable tax is separated into federal income tax, social security tax, etc. If the employee receives tips, the total amount of money earned in tips for the year must also be recorded. Say the employee works multiple jobs a year, they must fill out each W-2 separately.
The data provided in W-2s allows financial organizations to understand the credibility of both the employer and the employee. It enables banks and other financial institutions to measure the financial health of the individual and assess their tax-paying behavior. This helps them in making decisions regarding money matters of the individual. It also serves as a legal document that establishes a citizen as a trustworthy taxpayer.
W-2s are utilized by several authorized entities, each with specific purposes. Some common entities who use W-2 data are:
W-2s are used primarily within the U.S and are a fundamental part of their tax system. They serve as a crucial tool for reporting and managing income and tax obligations.
These tax statements are used by authorized individuals and organizations to accurately track income, ensure tax compliance, and make informed financial decisions. Some of the common areas that use W-2 forms are:
Several challenges arise while extracting data from W-2s. These tax statements are complex, contain sensitive information, and come in different versions. Apart from these, there are high error rates that occur during data entry, complex calculations, and data validation. W-2s may come from mixed sources, contain missing information, or have to assess foreign taxes and international employees. Keeping these challenges in mind, manual review and verification by trained professionals are often necessary to ensure the accuracy of the extracted data before it is used for tax reporting or other purposes, which can be time-consuming.
Intelligent automation of W-2 extraction refers to the use of advanced technologies, such as machine learning (ML) and artificial intelligence (AI), to streamline and enhance the process of extracting data from these tax statements. By using Infrrd IDP for W-2 data extraction, organizations can transform a complex and time-consuming process and make it seamless by improving accuracy, efficiency, and data integrity. It can also reduce manual intervention and minimize errors in the extraction process.
There are several benefits to using Infrrd IDP to extract data from W-2 forms:
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