Over the next few weeks, as your employees start to receive their 2022 W-2 form, they will most likely have many questions as to what all those numbers mean. For example, it is not uncommon for a salaried employee who earns $50,000 per year question why their Box 1 Wages only reflects $45,000. Did they get underpaid?
Probably not. If the employee contributes to a pension plan (aka 401(k)) or has pre-tax insurance deductions, then those amounts reduces the “taxable” wage, which is what appears in Box 1.
Some employees may also wonder why their Federal Income Tax withheld is less than expected. That is a whole different issue and most likely has to do with either a) their improper completion of the W-4 form or b) the governments intent to more accurately withhold taxes, so there is not a large refund due at year end. This puts more net pay in the employee’s hands throughout the year, thus stimulating the economy all year. For more details on why withholding is low, check out this article from two years ago Withholding Tax Drops Drastically, or have your employee check out my video on how to properly complete Form W-4 on youtube.com.
As for the W-2 itself, here is a handy guide that explains each box and all of the codes one may come across.
First off, I will start with a common question regarding timing. The wages and entries on the W-2 form are based on the wages paid during the calendar year. For example, if the employee worked from December 16, 2022 through December 31st, 2022, and the wages for that period were paid on January 7th, 2023, those wages would be reflected on next year’s 2023 W-2 form. The pay period is disregarded and the W-2 is solely based on the check date.
Box 1: Wages, tips, and other compensation. Box 1 reports your total taxable wages for federal income tax purposes. This figure includes your wages, salary, tips you reported, bonuses, and other taxable compensation. Any taxable fringe benefits (such as group term life insurance) are also included in your Box 1 wages. Any pretax insurance (health, dental, vision, etc.) or deferred compensation (401(k), 403(b), IRA, etc.) withheld from your wages has been subtracted from your gross pay amount to be included in this box. Box 2: Federal income tax withheld.
Box 2 reports the total amount withheld from your paychecks for federal income taxes. This represents the amount of federal taxes you have paid-in throughout the year based on your federal withholding status as requested on your Form W-4. To increase or decrease your withholding for the new year, submit a new Form W-4 as early in the year as possible.
All other boxes can be found in our full guide at blog.paymaster.com
PayMaster, Inc.
1880 N. Congress Avenue, Suite 222
Boynton Beach, FL 33426
Ph: 561-735-9969
888-717-5577
Paymaster.net
