Why is the amount on my final pay stub different than what is listed on my W-2?

If you’ve ever compared your final pay stub of the year to your W-2 form, you might have noticed that the numbers don’t exactly match. This discrepancy can be confusing, but it’s usually due to various deductions, taxes, and contributions that are accounted for differently on your pay stub and W-2 form. Let’s break it down:

Gross Income vs. Net Income

Your final pay stub typically shows your gross income, which is your total earnings before any deductions. This includes your regular wages, overtime, bonuses, and any other income. After subtracting deductions like taxes, health insurance premiums, retirement contributions, etc., you’re left with your net income, or take-home pay.

The Role of Deductions, Taxes, and Contributions

While your final pay stub shows all the deductions made throughout the year, your W-2 form only reports certain deductions. For instance, your 401(k) or traditional IRA contributions reduce your taxable income and will show a lower amount in Box 1 of your W-2 compared to your gross income on your final pay stub. On the other hand, certain deductions are not pre-tax and don’t reduce your W-2 wages. These include Roth IRA contributions and certain types of life insurance coverage.

Reconciling Your Pay Stub and W-2 Form

To reconcile your pay stub and W-2 form, start by comparing your gross income on your final pay stub to Box 1 on your W-2. If these numbers don’t match, check your pre-tax deductions such as your 401(k) or traditional IRA contributions, health savings account contributions, etc. Subtract these amounts from your gross income, and the result should match Box 1 on your W-2. If you still find discrepancies, it’s a good idea to consult with your payroll department or a tax professional. They can help you understand the differences and ensure that your W-2 form is accurate.

Key Takeaways

Understanding the difference between your final pay stub and your W-2 form can be complex, but it’s essential for ensuring that you’re paying the right amount of taxes. By familiarizing yourself with these concepts, you can better manage your income and deductions, and navigate the tax season with confidence.