Form W-2 includes all earned income, including tips.

Outline (quick skeleton)

• Hook: Why Form W-2 matters beyond just a payroll stub

• The core idea: Form W-2 reports all earned income, including tips

• What the form actually covers: a simple tour of the main boxes

• The role of tips: why they’re part of your taxable income and how they show up

• Debunking the other answer choices with plain logic

• A real-life, everyday example to make it stick

• Practical tips: what to check on your W-2 and why it matters

• Wrap-up: the big takeaway and where this fits into broader tax basics

What’s in Form W-2, anyway?

Let’s start with the basics. Form W-2 is the employer’s summary of what you earned and what was withheld for taxes in a given year. It’s the key document you’ll use when you file your tax return. Think of it as your income report card for the year, handed to you by your employer, and also sent to the IRS so they can check the math. If you’re looking at Intuit Academy’s Level 1 tax content, you’ll see this idea echoed: W-2 is all about earned income and how it’s taxed.

The core idea you’re answering today is simple: Form W-2 includes all earned income, and that includes tips. So the correct answer is B: All earned income, including tips. It’s not just hourly wages, not just salaries, not just overtime. It’s the whole package of earnings that comes from an employer. And yes, tips count as earned income, too.

A quick tour of the form (without getting lost in the jargon)

To help you visualize, here are the main pieces you’ll encounter on a W-2:

• Box 1: Wages, tips, other compensation. This is the big one. It shows your total cash pay, including tips that you reported to your employer. If you made tips in a restaurant or service job, those tips get folded into Box 1 so they’re taxed like regular wages.

• Box 7: Social Security tips. This is where allocated tips live. In some hospitality settings, employers may allocate tips to workers if the workers didn’t report all their tips to the employer. Those allocated tips are included in Box 1 as wages, and Box 7 shows the amount allocated for records. If you didn’t have allocated tips, Box 7 would be smaller or zero.

• Boxes 3 and 5: Social Security wages and Medicare wages. These boxes show wages subject to Social Security and Medicare taxes; they often match or differ from Box 1 depending on pre-tax deductions (like retirement plan contributions).

• Box 12: Codes for special items. Here you’ll see codes for things like employer retirement plan contributions (D for 401(k)), excess interactions with pre-tax benefits, and other compensation details. It’s a way the IRS separates different flavors of compensation for tax purposes.

• Boxes 17 and 19 (state and local): Where state and local wages and taxes show up, if applicable. If you live in a place with state income tax, you’ll see those numbers here.

• Box 14: Other. This is a flexible space for miscellaneous items your employer wants to report.

If you’re studying this topic, picture Box 1 as the headline of your earnings, and the other boxes as the footnotes and details that explain where those dollars came from and how they’re treated for taxes.

Why tips matter (and why they’re included)

Tips aren’t optional extras; they’re part of your earnings. For servers, bartenders, valets, and similar roles, tips can make up a big chunk of pay. Because taxes are calculated on earned income, those tips need to be reported and taxed just like hourly wages. This is why Form W-2 includes tips in Box 1. It keeps the tax picture honest and complete.

Two practical rubs you’ll see in the real world:

• If you report tips to your employer, those tips are included in Box 1 as wages. Your withholding (federal income tax, Social Security, Medicare) is based on that total.

• If the employer allocates tips (Box 7), those allocated tips are added to Box 1 as well, so the year’s tax tally reflects the full picture of what you earned.

Think of it like this: your paycheck is the story of your year’s work, and W-2 is the official, IRS-ready version of that story. The tips you earned don’t vanish into the ether; they’re part of what the government uses to check your tax return for accuracy.

Clearing up the distractors (why the other choices aren’t right)

• A. Only cash payments — Not true. Wages include not just cash, but salaries, bonuses, and tips. It’s all earned income, not just cash payments.

• C. Hourly wages only — Wages cover more than hourly pay. Salaries, bonuses, and yes, tips all count as earned income on W-2.

• D. Overtime pay only — Overtime is part of wages, but it’s not the whole story. Any earned income beyond base pay, including tips, goes into the W-2 as appropriate.

A simple, everyday example to ground the idea

Imagine you work as a barista who also gets tips. Your paycheck for the year shows:

• Hourly wages totaling $28,000

• Tips totaling $4,500 that you reported to your employer

Your Form W-2 would reflect:

• Box 1: Wages, tips, other compensation = $32,500 (the sum of wages plus tips)

• Box 7: Tips (if applicable) would show any allocated tips

• Boxes 3 and 5 would reflect Social Security and Medicare wages, possibly with adjustments for pre-tax benefits

• Box 12 and beyond would record retirement contributions or other relevant deductions

On your tax return, you’d report your gross income, and the tax calculation would consider both the wages and the tips as earnings, with withholding having already occurred through payroll.

Let me explain why this matters beyond the numbers

Understanding what W-2 includes helps you navigate several real-life situations:

• If you ever compare your paycheck to your W-2, the mismatch between Box 1 and your expectations can be confusing. Remember: the form is designed to capture all earned income, not just base pay.

• If you’ve got tips, you want to be sure your employer is handling them properly for payroll taxes. That protects you and keeps your tax return accurate.

• When you file, you’ll use the W-2 as the main source document for wages, tips, and withholdings. It’s the backbone of a smooth tax process.

A few practical checks you can do

• Compare Box 1 (wages, tips, other compensation) with your last paycheck stubs. Do they tell the same story about your earnings for the year?

• If you had tips that you reported to your employer, verify that those tips are included in Box 1. If not, there could be a mismatch to fix.

• Look at Box 7 (allocated tips) if your job involved tip allocation. Remember, allocated tips still affect Box 1.

• Check Boxes 3, 5, and 12 to see how pre-tax contributions and other items affect your tax picture. If you contributed to a retirement plan, Box 12 will have a code for that, which matters for your tax calculation.

• Don’t forget state and local sections (Boxes 15-19) if your state has income tax. They help ensure you’re paying the right amount at the local level as well.

A little context that often helps

Form W-2 is part of a larger system designed to keep payroll and taxes orderly. Employers report to the IRS, workers report to their tax software or on their forms, and the numbers line up so the tax picture is credible. It’s a bit like keeping a ledger in a small business: every dollar earned and every dollar withheld has a place, and the W-2 is the official ledger for an employee’s year.

Putting it all together

Here’s the take-home you can carry forward: Form W-2 captures all earned income, including tips. The main box you want to look at for the total is Box 1, which brings together wages, salaries, bonuses, and tips. The other boxes add layers that help explain how those earnings were taxed and what benefits or deductions mattered along the way. This clarity is what keeps filing straightforward and accurate.

Some quick, friendly reminders

• If you’re ever unsure about a number on your W-2, your employer is the right first contact. They can explain the line items and reissue if something’s off.

• Retain your W-2 with your other important tax documents. You’ll want to reference it when you file and if you ever need to verify something later.

• If tips were a big part of your earnings, give those numbers a careful check. Tips matter for tax, and they matter for the overall picture of your income.

A closing thought

Tax basics aren’t just abstract ideas; they’re practical tools you can use in daily life. Understanding what Form W-2 includes helps you see how every earned dollar is accounted for and taxed. It’s a small piece of a larger puzzle—one that becomes clearer with a little curiosity and a touch of everyday math. If you’re exploring the essentials of how income gets reported, you’ll find that the W-2 is a reliable, user-friendly companion on your journey.

If you’re curious to dig deeper, you’ll discover more about how different kinds of income interact with Social Security, Medicare, and withholding rules. And while the details can feel technical, the core idea remains approachable: W-2 is the official summary of what you earned and what was withheld, with tips folded into the total. That simple truth makes the form something you can understand, use, and trust.