W-2 vs Last Pay Stub: What’s the Difference?

Box 1 shows the amount of gross taxable wages an employer paid. These wages include tips, bonuses, commissions, and salaries. This part of Form W-2 doesn’t include amounts given to retirement plans or other payroll deductions. Because it subtracts other deductions, it’s often less than the amounts shown in Boxes 2 and 3. Therefore, it may be lower than the amount on a final pay stub.

Box 2 shows the Federal income tax withheld from your pay during the previous calendar year. The W-4 you fill out each year determines this tax withholding rate. If your employees find their tax number too high or low, encourage them to adjust their Form W-4 since this information directly affects Box 2 of the W-2.

Box 3 includes the number of earnings your employer paid you – not including tips – subject to Social Security tax. The number in this box doesn’t consider pretax deduction items that reduce overall taxable income, which means Box 3 could be higher than the amount shown in Box 1.

However, if you or your employee are high-income earners, this box could be less than the total amount in Box 1. That’s because there is a maximum amount of wages Social Security can tax high-income earners. The maximum Social Security tax for high-income earners in 2024 is $168,600.

This amount represents the total social security taxes withheld from your wages. Box 4 gets calculated as 6.2 percent of the Social Security wages in Box 3. You shouldn’t have more Social Security withholding than the maximum wage base x 6.2%.

Medicare wages and tips are the total amount of earnings you make that are subject to Medicare tax. These taxes don’t usually subtract pre-tax deductions and include taxable benefits like bonuses and vacation. There also isn’t a cap on Medicare taxes, which means the number in Box 5 can be significantly larger than what’s shown in Box 1 or Box 3.

Medicare tax withheld represents the amount Medicare deducted from your wages for taxes. Both Social Security and Medicare taxes come from a flat rate. The rate is usually 1.45% percent of the total Medicare wages in Box 5.

An easy formula for this is Box 6 = Box 5 x 1.45%. However, employees who earn more than $200,000 (single) or $250,000 (married filing jointly) are also subject to an additional 0.9 percent Medicare tax.

This box represents tips subject to Social Security Tax. If this box is blank, you didn’t report any tips earned to your employer. However, unreported tips are still taxable. The amount in this box and Box 3 should total the amount in Box 1.

This box shows the tip income your employer allocated to you. W-2 boxes 1, 3, 5, or 7 don’t include this amount. To learn more about tip income, click here.

This box was for the 16-digit code issued to employers who participated in the IRS Verification Initiative but is no longer in use. It applied only to electronically filed returns and was intended to combat tax identity theft and refund fraud.

Box 10 lists the total amount paid into your dependent care flexible spending account for the year. Any amount over $5,000 is included in Box 1 as well.

This box shows the total amount distributed to you from your employer’s nonqualified deferred compensation plan. This amount is taxable and is not to be confused with the amounts listed in Box 12. Box 11 is distributed to you, while Box 12 gets distributed by you.

This box indicates compensation or benefits by code. Not all Box 12 codes are taxable. Here is more information on each code:

• A — Uncollected Social Security or RRTA tax on tips
• B — Uncollected Medicare tax on tips (but not Additional Medicare tax)
• C — Taxable cost of group-term life insurance over $50,000
• D — Elective deferrals under a section 401(k) cash or deferred arrangement plan (including a SIMPLE 401(k) arrangement)
• E — Elective deferrals under a section 403(b) salary reduction agreement
• F — Elective deferrals under a section 408(k)(6) salary reduction SEP
• G — Elective deferrals and employer contributions (including nonelective deferrals) to a section 457(b) deferred compensation plan
• H — Elective deferrals to a section 501(c)(18)(D) tax-exempt organization plan
• J — Nontaxable sick pay
• K — 20% excise tax on excess golden parachute payments
• L — Substantiated employee business expense reimbursements
• M — Uncollected social security or RRTA tax on taxable cost of group-term life insurance over $50,000 (former employees only)
• N — Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000 (but not Additional Medicare Tax) (former employees only)
• P — Excludable moving expense reimbursements paid directly to members of the Armed Forces
• Q — Nontaxable combat pay
• R — Employer contributions to an Archer MSA
• S — Employee salary reduction contributions under a section 408(p) SIMPLE plan
• T — Adoption benefits
• V — Income from exercise of nonstatutory stock option(s)
• W — Employer contributions (including employee contributions through a cafeteria plan) to an employee’s health savings account (HSA)
• Y — Deferrals under a section 409A nonqualified deferred compensation plan
• Z — Income under a nonqualified deferred compensation plan that fails to satisfy section 409A
• AA — Designated Roth contributions under a section 401(k) plan
• BB — Designated Roth contributions under a section 403(b) plan
• DD — Cost of employer-sponsored health coverage
• EE — Designated Roth contributions under a governmental section 457(b) plan
• FF — Permitted benefits under a qualified small employer health reimbursement arrangement
• GG — Income from qualified equity grants under section 83(I)
• HH — Aggregate deferrals under section 83(i) elections as of the close of the calendar year
• II — Medicaid waiver payments excluded from gross income under Notice 2014-7

This box is checked when an employee actively participates in a retirement plan. For more information, see the Box 13 Retirement Plan Checkbox Decision Chart on the IRS W-2 form.

This box reports miscellaneous information:

• State disability insurance taxes withheld
• Union dues
• Uniform payments
• Deducted health insurance premiums
• Nontaxable income
• Educational assistance payments
• A member of the clergy’s parsonage allowance and utilities
• Charitable contributions made through payroll deduction

Box 15 is where you list your employer’s state and tax identification number. If you work in a state that doesn’t require W-4 reporting, Box 15, 16, and 17 will be blank. However, more than one box will get filled if you have multiple withholdings in various states. Here’s a list of states that don’t require this reporting:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Box 16 represents the number of your wages subject to state tax. The amount might differ from the amount shown in Box 1. This box will remain blank if you don’t live in a state with income taxes.

If you reported wages in Box 16, then Box 17 will show the amount of state taxes withheld from you and your employee’s income. If you live in a state with a flat state tax, it’s good to double-check withholdings by multiplying the amount in Box 16 by that state’s tax rate.

State income taxes can impact final pay stubs and W-2s. Employees should be mindful of varying state taxes and how moving from one state to another can affect their year-end documents.

Here is a list of states with flax tax rates. This list is subject to change.

• Arizona – 2.50%

• Colorado – 4.40%

• Georgia – 5.49%

• Idaho – 5.80%

• Illinois – 4.95%

• Indiana – 3.05%

• Iowa – 4.00%

• Kentucky – 4.25%

• Michigan – (4.70% on all income after the first $10,000)

• Mississippi – (3.00% tax on interest and dividend income only; the state is phasing it out and has scheduled this tax to cease after December 31, 2026)

• North Carolina – 4.50%

• Pennsylvania – 3.07%

• Utah – 4.65%

If you or your employees live in an area subject to local, city, or other state income taxes, those wages get reported here. When employees have wages subject to withholding in more than two states or localities, you need to provide them with an additional W-2 form.

Any taxes withheld on the wages in Box 18 get reported in Box 19.

Box 20 is where you put the name of the local area, city, or other state tax reported in Box 19.