So, you've gotten your tax paperwork and noticed that your W2 wages are lower than your yearly salary.
That's common!
Your final pay stub may not match your W2. Federal (Box 1) will be reduced by Retirement Plan 401K and all Pre-Tax deductions. To make matters more complex, the amounts shown for Social Security (Box 3) or Medicare (Box 5) will be reduced by Pre-Tax deductions only.
Why?
The difference between your pay stub and W2 can be due to a number of factors.
But don't worry! The good news is when your W2 is lower than your salary; you'll probably owe less in taxes.
The Retirement Plan 401K will come off of Box 1 only.
Pre-Tax deductions, including health insurance premiums and contributions to flexible spending accounts, will come off of Box 1, Box 3, and Box 5.
Your Federal Taxable Wages are reduced by your Retirement Plan 401K and Section 125 deductions.
Your social security Taxable Wages are reduced by your section 125 deductions.
Wages are not reduced by Retirement and 401K plans.
Your Medicare Taxable Wages are reduced by your section 125 deductions.
Wages are not reduced by Retirement and 401K plans.
And that's it!
It can be a little confusing, but that's okay! No matter why your wages might be lower than what you earned this year, now you can rest knowing there's likely an easy explanation.
One of our purposes at Baron Payroll is to inform our customers about confusing financial paperwork. Because more knowledge means better decisions, but if you still have questions or want more information on our products or services, you can reach out to us here or email support@baronpayroll.com.
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