Payroll and Taxes Explain How Federal Wages Are Calculated for Form W-2 - 01/26/12

The Payroll and Taxes offices have received numerous questions about Box 1 on the Internal Revenue Service’s Form W-2. According to Payroll and Taxes, here’s how federal wages are calculated for Box 1:

Using the employee’s final pay stub of the year —
Step 1. Under the “Earnings” heading, begin with total year-to-date (YTD) earnings.
Step 2. Under the “Pre-Tax Deductions” heading, subtract total YTD pre-tax deductions.
Step 3. Under the “Taxable Benefits” heading, add total YTD taxable benefit.

To get the Social Security and Medicare taxable wages (boxes 3 and 5), take the amount in Box 1 and add back any retirement contributions that were included in the total YTD pre-tax deductions from Step 2 above.

Individuals with questions regarding their W-2 may contact Staff should address questions about their specific tax situation to their tax advisor or tax return preparer.