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Why Are W-2s and Final Pay Stubs Different?
Why is the gross amount on my final pay stub different than the amount on my w-2?
1. Earnings Included Non-Taxable Income Items
Mary’s gross wages are $30,000 but over the course of the year, she received $2,000 towards a non-taxed car allowance. Mary’s taxable W-2 wages will be $28,000. ($30,000 – $2000 = $28,000).
2. Company-Sponsored Retirement Plan Participation
Sally’s gross wages are $30,000 but over the course of the year, she contributed $3,000 towards her 401(k) retirement. Sally’s federal and state W-2 wages will be $27,000. ($30,000 – $3000 = $27,000).
3. Company Health Insurance is a Pre-Tax Deduction
John’s gross wages are $30,000 but over the course of the year, he contributed $2,000 to a pre-tax health insurance deduction. John’s taxable W-2 wages will be $28,000 ($30,000 – $2,000 = $28,000).
Do Your Employees Have W-2 Questions?
Get our handy reference sheet to give to your employees when they have questions about their final pay stubs and W-2s.
What do all the boxes on my W-2 mean?
Box 4 - Social Security Tax Withheld - This amount represents 6.2 percent of the Social Security wages in Box 3 withheld during the year.
Box 5: Medicare Wages and Tips - The total amount of earnings your employer paid you subject to Medicare tax.
Box 12 - Compensation and Benefits: This box is used to indicate a compensation or benefit by code. Click to see the types of codes included.
- A — Uncollected Social Security or RRTA tax on tips. Include this tax on Form 1040.
- B — Uncollected Medicare tax on tips. Include this tax on Form 1040.
- C — Taxable cost of group-term life insurance over $50,000 (included in boxes 1,3 (up to Social Security wages base), and box 5.
- D — Elective deferrals to a section 401(k) cash or deferred arrangement. It also includes deferrals under a SIMPLE retirement account that’s part of a section 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 non-elective 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 (information only, not included in Boxes 1, 3, or 5).
- K — 20% excise tax on excess golden parachute payments.
- L — Substantiated employee business expense reimbursements (nontaxable).
- 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 (former employees only).
- P — Excludable moving expense reimbursements paid directly to a member of the U.S. Armed Forces (not included in Boxes 1, 3, or 5).
- Q — Nontaxable combat pay. See the instructions for Form 1040 or Form 1040A for details on reporting this amount.
- R — Employer contributions to your Archer medical savings accounts (MSA). Report on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts.
- S — Employee salary reduction contributions under a section 408(p) SIMPLE plan (not included in Box 1).
- T — Adoption benefits (not included in Box 1). Complete Form 8839, Qualified Adoption Expenses, to compute any taxable and nontaxable amounts.
- V — Income from exercise of non-statutory stock option(s) (included in Boxes 1, 3 (up to Social Security wage base), and 5). See Publication 525, Taxable and Nontaxable Income, for reporting requirements.
- W — Employer contributions (including amounts the employee elected to contribute using a section 125 (cafeteria plan) to your health savings account (HSA). Report on Form 8889, Health Savings Accounts (HSAs).
- Y — Deferrals under a section 409A nonqualified deferred compensation plan.
- Z — Income under a nonqualified deferred compensation plan that fails to satisfy section 409A. This amount is also included in Box 1 and is subject to an additional 20% tax plus interest. See the Form 1040 instructions.
- 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. The amount reported with Code DD isn’t taxable.
- EE — Designated Roth contributions under a governmental Section 457(b) plan. This amount doesn’t apply to contributions under a tax-exempt organization 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.
Box 14 - Other - This box can be used to report miscellaneous information, such as:
- State disability insurance taxes withheld
- Union dues
- Uniform payments
- Health insurance premiums deducted
- Nontaxable income
- Educational assistance payments
- A member of the clergy’s parsonage allowance and utilities
- Charitable contributions made through payroll deduction
Box 16: State Wages, Tips, Etc. - The amount of your wages subject to state tax. This amount might differ from the amount shown in Box 1.
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