Awesome content, even better software. Just think what our technology could do for you.
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.
How aps can help
APS has a mission: to make payroll and HR easier. We provide our clients and partners with intuitive technology delivered with personalized service and support. Our unified solution is designed to simplify workforce management tasks. Process payroll in hours, not days. Automate HR workflows to be more strategic. Elevate the employee lifecycle with a single-system platform. We are APS, your workforce partner.
Businesses choose APS as their workforce partner because of our focus on the customer experience. As a result, we continually maintain 98% customer retention and satisfaction rates.
For more information on how we can help make payroll and HR easier for your business, please visit www.apspayroll.com or call 855-495-7921
Check out more great articles from the APS Blog covering HR, payroll, and everything in between.
APS has once again emerged as a leading payroll and HR solutions provider, earning an impressive 42 fall G2 awards this season.
With the Department of Labor’s release of an updated FLSA overtime rule, those thresholds are set to change on January 1, 2020. Find out more.
We’re looking at some of September’s compliance updates, including state electronic filing rule and state unemployment wage base changes.
In September, our CRO & Forbes Business Development Council member, Christian Valiulis, answered questions about various business topics. Here are his thoughts.
When a mistake happens on an employee’s Form W-2, it’s important to correct it immediately to avoid fines. Let’s look at the 10 most common W-2 errors.