What is the purpose of Form W-2?

Form W-2 serves a critical function in the payroll and tax reporting process by providing employees with a detailed summary of their annual earnings as well as the total amount of taxes withheld from their paychecks throughout the year. This form is essential for employees when filing their personal income tax returns, as it includes information such as total wages, tips, and other compensation, as well as federal, state, and Social Security taxes withheld.

The accurate reporting of this information allows employees to determine their tax liabilities or refunds when they file their taxes. Therefore, the primary purpose of Form W-2 is to ensure transparency and compliance with tax laws by enabling employees to have a clear record of their earnings and withholdings for the year. The other options, while related to financial reporting and employer practices, do not align with the primary function of Form W-2.