Understanding W2 Wages

Understanding W2 Wages

The most common questions some employees have relate to why W-2 Wages differ from their final pay stub for the year, and why Federal and State Wages on their W-2 differ from Social Security and Medicare Wages on the W-2. The short answer is that the differences relate to what wage amounts are taxable in each case. The following steps will walk you through the calculations of the W-2 wage amounts and enable you to reconcile these to the final pay stub for the year.

CALCULATING FEDERAL AND STATE TAXABLE WAGES (BOXES 1 & 16)

Use the last pay stub for the year to calculate the taxable wages in boxes 1 and 16 on W-2.


 Gross Pay YTD (year to date)
 minus
 pretax deductions (Sec 125 insurance, HSA, FSA, etc) 
 minus
 retirement deductions (401k, 403b, Simple IRA, etc)

CALCULATING SOCIAL SECURITY TAXABLE WAGES (BOX 3)

Use the last pay stub for the year to calculate the taxable wages in box 3 on W-2.

*Social security wages will cap at $168,600 in 2024*


 Gross Pay YTD (year to date)
 minus
 pretax deductions (Sec 125 insurance, HSA, FSA, etc) 
 minus
 tips (tips will show in box 7 of W2)

CALCULATING MEDICARE TAXABLE WAGES (BOX 5)

Use the last pay stub for the year to calculate the taxable wages in box 5 on W-2.


 Gross Pay YTD (year to date)
 minus
 pretax deductions (Sec 125 insurance, HSA, FSA, etc) 

If you feel there has been an error in calculating the taxable wages on an employee's W-2, please reach out to your payroll specialist for assistance.

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