Which of the following best describes the purpose of the W-2 form in accounting?

• A. It is used by individuals to claim tax deductions for charitable contributions.
• B. It summarizes a company's financial position at a specific point in time.
• C. It reports an employee's annual wages and the amount of taxes withheld from their paycheck.
• D. It is used by employers to report business expenses to the IRS.

Answer: (C)

Verified step by step guidance

1. Understand the purpose of the W-2 form: The W-2 form is a document provided by employers to employees that summarizes the employee's annual wages and the amount of taxes withheld from their paycheck.
2. Clarify its role in accounting: The W-2 form is essential for employees when filing their personal income tax returns, as it provides the necessary information about their earnings and tax withholdings.
3. Differentiate the W-2 form from other forms: Unlike forms used for claiming deductions (e.g., charitable contributions) or reporting business expenses, the W-2 form is specifically designed to report employee wages and tax withholdings.
4. Recognize its importance for compliance: Employers are required to issue W-2 forms to employees and the IRS to ensure accurate reporting of income and taxes.
5. Conclude the correct description: Based on the options provided, the correct answer is that the W-2 form reports an employee's annual wages and the amount of taxes withheld from their paycheck.