Computation For Your W-2 Wages Using a Paystub
Often, people do not begin with the tax process if there is no W2 yet. After all, to prepare your tax return, you will need the information from your W2 form. What if your W2 is not yet with you? It is not necessary for you to wait for your W2. Your paystubs actually contains information that are in your W2. We will teach you now how to calculate W2 wages using a paystub.
Paystub is the check that you receive once your employer pays you your salary. It contains details about your pay, along with the total amount of money that you will receive as of the pay period as well as the year-to-date payroll. It also shows the deductions and taxes that will be reduced from your earnings. Given this, the paystub indicates your net earnings or the amount that you will actually receive.
Definition of a W-2.
The tax form that lists the taxes to be withheld from your paycheck for the current year is called a W-2. This is also an integral part of filling out the tax return.
Computation of W-2 Wages From A Paystub.
Since you W-2 form lists the taxes withheld from your paycheck, it also tells how much net income you’ve earned for the year however, waiting for it is not your only option especially that you can compute for your W2 wages using your paystubs. You can calculate your overall net income by yourself with your paystubs although it does not hold all the information present in a W2 form. Here’s how you do it.
Calculate for your Gross Income.
The first step is finding your gross income which is equal to the total amount of your earnings before all deductions and tax withholdings. Commonly, gross income is the hourly rate times the number of hours worked per week. The paystub has this details too as well as details regarding your overtime hours, bonuses, and commissions.
2. Deduct Non-Taxable Wages.
Once you have computed for your gross income, the next step is to subtract from it your non-taxable wages. These non-taxable wages are the wages you’ve earned that do not have income taxes, federal taxes, or state taxes due. Wages like these are disability wages, partnership income, employer insurance, or gifts.
3. Determine Other Deductions.
There are people who are eligible for pretax deductions that lessens their taxable income. Life insurance, retirement accounts, transportation programs, employer benefits, and health benefits are examples of pretax deductions. The total amount of these deductions can be found on your paystub.
You subtract the total amount of pretax deductions from the total amount you have derived in step 2. The amount in the Box 1 of your W2 form should be equal to the amount that you have computed after this step.
4. Determine Your Annual Taxes.
Look for the amount of taxes–local, state, and income taxes–from your paystub that are withheld and multiply this amount by the number of times you are paid in a year. For example, if by chance you are paid twice in a month, then you multiply the total amount of withheld taxes by 24. The product is the total amount of taxes that will be withheld at the end of the year.
Calculate Your W-2 Earnings.