How To Read A W-2 In An Illinois Divorce
In almost every Illinois divorce financial documents will be exchanged between the parties. This exchange always includes the parties’ taxes, which may have been filed together. The tax return usually tells 90% of a divorcing party’s financial story in regards to income.
Understanding a spouse’s income may not be possible by reviewing their income tax returns alone. When those taxes were prepared, the preparer used other documents in order to know how to fill out the parties’ 1040 tax return. If the spouse had an income it likely came from a job. The spouse’s employer provided the spouse with a form called a “W-2”. The W-2 form should confirm what the 1040 tax return indicates and it should provide additional clues as to a divorcing party’s true income and assets.
Without knowing a spouse’s true income and assets, a divorcing party will never be able to effectively request and subsequently receive the child support, maintenance (formerly known as alimony) and division of marital assets to which they are entitled to. Therefore, every divorce litigant and divorce lawyer should take an extra 10 minutes to review the opposing party’s and their own W-2s.
Below is a 2020 W-2 for reference.
The left hand columns, boxes a,b,c,d,e and f, include the employee and the employer’s information. These names, addresses and social security number should conform with your understanding and records of the spouse’s name, address and social security number. If not, they’ll have a lot of explaining to do.
Box 1. Wages, tips, other compensation. This is all of the income in all forms which the spouse has received from that employer. This will include:
- Total wages and tips paid.
- Total prizes and awards paid.
- Total noncash payments, including fringe benefits.
- Certain business expense reimbursements.
- Taxable benefits from a cafeteria plan.
- Under some circumstances, the cost of accident and health insurance and qualified long -term case services.
- Certain scholarships, fellowship grants and moving expenses.
Box 1 is the total income but that income is taxed and reduced by boxes 2, 4 and 6 for Federal Income tax, Social Security tax and Medicare tax withholdings.
Box 1 also includes various types of income. Earned income is subject to social security tax. Other types of income may not be subject to Social Security Tax Income and Medicare wages and tips.
Box 2. Federal Income Tax Withheld. This is the amount the employer withheld pursuant to the employee’s request for standardized deductions. If the federal income tax withheld seems higher or lower than it should be, the employee spouse can questioned as to why they did that.
Box 3. Social Security Wages. This box reflects the income which is taxable by Social Security. It may not be the same amount as the amount in Box 1. If so, you need to inquire into what income is not earned income and why is not considered earned.
Box 4. Social Security Tax Withheld. This is the amount the employer withheld based on the employee’s earned income. This will almost always be a standard non-modifiable amount.
Box 5. Medicare Wages and Tips. This amount is the income which is subject to Medicare Tax. Again, this mount may not be identical to Box 1 and if it is not, you need to know why. A common difference between box 1 and boxes 3 and 5 is the amount of employee contributions to deferred compensation plans such as a 401(k). In the year the contributions are made, deferred compensation contributions reduce the employee’s taxable income for income tax purposes, but not for Social Security or Medicare taxes. So, a different income amount in Boxes 1, 3 or 5 could mean there are retirement funds to investigate.
Box 6. Medicare tax withheld. This amount will be standardized based on Box 5.
Box 7. Social Security Tips. These are the tips your spouse reported to their employer. This presumes that an employee is following the law and told their employer about all of the cash tips they had received this year. This never happens. Box 7 ends up being the same as Box 8.
Box 8. Allocated Tips. These are the tips that the employee received in advance and the employer knew about. This is inevitably tips received via credit card which passed through the employer and then went directly to the employee. An employer would never allocate cash tips because cash tips do not pass through the employer. Therefore, an identical Box 7 and Box 8 for a tip-receiving employee means that cash tips have not been reported or accounted for and therefore must be imputed to the spouse through the divorce process.
Box 9. Advance EIC payment. This shows the total amounts paid to the employee as advanced earned -income credit payments. The earned income tax credit is a subsidy to lower income earners who work and, usually, have children. This amount is in addition to Box 1. In my experience, people eligible for an earned income tax credit always take their credit at the end of the year and not in advance through their employer.
Box 10. Dependent care benefits. This is employer supplied daycare and other benefits for dependents of the employee. If the benefits are over $ 5000, they will be included in Box 1.
Box 11. Nonqualified Plans. This is any distribution (withdrawal) from a tax-deferred account such as a 401k. This means marital money was spent and possibly dissipated from that tax-deferred account. In an Illinois divorce, this must be investigated.
Box 12. It says “see instructions for Box 12” because Box 12 contains all of the rare but possible income events that could pass through an employer. Each possible event will be labelled with a letter to code what kind of event exactly happened. In lieu of listing the 29 possible events, I too will advise you to “see instructions” and investigate accordingly.
Box 13. Contains three boxes which may be checked in order to clarify certain issues with the W2 in general.
- The first box indicates whether the employee is a “Statutory Employee.” A statutory employee is a contractor who is treated like an employee. Therefore, the contractor/employee does not have to pay federal income taxes through the employer but does have to pay Social Security and Medicare taxes. Should a spouse be a “statutory employee” there will be other tax documents you’ll need to fully show their taxable income.
- The second box “Retirement Plan” indicates if the employee is a participant in the employer’s retirement plan. If the employee is a participant, they must disclose their retirement plan’s balance as it is almost certainly marital and thus divisible.
- The third box, “Third-party sick pay” indicates if the employee received sick pay through a third pary (usually some kind of insurance or government benefit). Should a spouse have this box checked on their W-2, an inquiry should be made as to what the amount was and who the third-party was.
Box 14. Other. An employer can provide any additional information they choose to list such as health insurance premiums deducted, union dues, educational assistance payments, company car lease value, etc. Anything listed in this box should be investigated in an Illinois divorce.
By now you can see, that a W2 is just another tip of the iceberg in the Illinois divorce discovery process. For a W2 employee, the answers to discovery questions are easily provided and the paper trail ends quickly. Once the parties have all the necessary information requested, they can proceed to negotiating the final terms of their Marital Settlement Agreement or use that information as exhibits in their divorce trial.
How Do You Get Your Spouse’s W2 In An Illinois Divorce?
Almost every Illinois divorce will require the spouses to exchange financial affidavits. “One form of financial affidavit, as determined by the Supreme Court, shall be used statewide. The financial affidavit shall be supported by documentary evidence including, but not limited to, income tax returns, pay stubs, and banking statements.” 750 ILCS 5/501(a)(1)
The supporting document, income tax returns should include the documents which support the tax return, including a W2. This is why an accountant asks for a W2 before preparing a tax return and why a W2 is, inevitably, included in a packet of finished tax returns.
If you don’t already have a copy of your spouse’s W2 for the years in which questioning their income and assets are relevant, you can simply ask your spouse for a copy via a Notice To Produce.
“[A] party may obtain by discovery full disclosure regarding any matter relevant to the subject matter involved in the pending action” Ill. Sup. Ct. R. 201(b)(1)
Illinois Supreme Court Rules allow either that either party “may by written request direct any other party to produce for inspection, copying, reproduction photographing, testing or sampling specified documents, including electronically stored information as defined under 201 (b)(4), objects or tangible things…or to disclose information calculated to lead to the discovery of the whereabouts of any of these items, whenever the nature, contents, or condition of such documents, objects, tangible things, or real estate is relevant to the subject matter of the action. The request shall specify a reasonable time” Ill. Sup. Ct. R. 216(b)
If your spouse has his or her W2s or has access to his or her W2s, they must turn them over to you within a reasonable period of time after your request.
If your spouse does not have their W2s, then their accountant or tax preparer will have copies. The IRS recommends that tax filers and their accountants keep their tax records and supporting documents for 7 years as audits can occur regarding the previous 6 years. Additionally, the employers who issued the W2s will also have kept the W2s for the last 7 years.
To get a W2 from an accountant, tax preparer or employer, a subpoena must be issued to that party. The third party must then answer the subpoena or be subject to possible contempt of court penalties.
An Illinois attorney has the power to automatically issue a subpoena which will have the full force of law.
“[S]ubpoenas may be issued by an attorney admitted to practice in the State of Illinois who is currently counsel of record in the pending action. The subpoena may command the person to whom it is directed to produce documents or tangible things which constitute or contain evidence relating to any of the matters within the scope of the examination permitted under these rules” Ill. Sup. Ct. R. 204(a)(1)
A person without an attorney must ask the court to certify their subpoena before issuing that subpoena.
If you’re flustered by even your spouse’s most basic discovery documents such as a W2, contact my Chicago, Illinois divorce law firm for a free no-obligation consultation with an experienced Chicago divorce attorney.