What does the form w2 mean?

It reports to both the employee and to the IRS, who each get a copy, how much was earned and how much was withheld, (and even how much was paid or spent on benefits). This information is critical to preparing a tax return and for the employee to receive credit for the amounts of tax withheld (as a prepayment) from his pay during the year, as well as to assure things like Social Security and insurance benefits are properly recorded and in place.