W-2 Form and Last Pay Stub – Understanding the Difference

W-2 Form and Last Pay Stub – Understanding the Difference

As the new year begins, employers and HR teams start to gear up for tax season. One query that may puzzle employees is the distinction between a W-2 and their last pay stub. When employees receive their W-2 forms, they might notice a discrepancy between their last pay stub and the information listed on the form.

If you are not familiar with payroll taxes or have experience in handling payroll, it can be difficult to understand. However, if you want to assist your employees during tax season, it is important to grasp the distinction between gross pay and W-2 wages. In this article, we aim to clarify the difference between a pay stub and a W-2, so that you can effectively guide your employees through tax form procedures.(Source: fake tax return generator)

Do a W-2 and a Pay Stub Have The Same Meaning?

The W-2 and pay stub are not identical. The W-2, also called the Wage and Tax Statement, is an obligatory record that employers must provide to their employees annually. After employees choose their desired deductions, the employer must send the details to the Internal Revenue Service (IRS) for reporting. Consider the W-2 as a pay stub that shows the net earnings for employees.

An employee’s pay stub provides a breakdown of their gross earnings for each pay period. While employers are not obligated to provide pay stubs to employees, the Fair Labor Standards Act mandates that they record and keep track of employees’ work hours.

Physical paychecks often come with a pay stub that outlines the employee’s payment information. Alternatively, some payroll systems offer digital access to pay stubs through online portals, eliminating the need for a physical attachment.

Possible Reasons for Discrepancy Between Gross Amount on Year-End Pay Stub and Amount on W-2 Form

  • Pay stubs at the end of the year contain income items that are not subject to taxation. Some examples of such non-taxable income items are reimbursements for non-taxable expenses. These items are reimbursed to employees through payroll runs. Consequently, the total wages displayed on an employee’s pay stub may differ from the wages reported in Boxes 1, 3, 5, and 16 on the W-2 form because the non-taxable items reduce the gross taxable wages.
  • Participation in retirement plans provided by the company, results in a decrease in taxable wages for both federal and state levels. This information is reported in Boxes 1 and 16, respectively. If you make contributions to a retirement plan, there will be a discrepancy between the compensation noted on your end-of-year pay stub and your W-2 form.
  • Your company’s health insurance might be the reason your last pay stub doesn’t match your W-2. If your employer offers pre-tax health insurance and you’re enrolled, the taxable wages on your pay stub (Boxes 1, 3, 5, and 16) will be lower than the amount of the pre-tax health insurance deduction. That’s because pre-tax deductions reduce your gross wages by the annual amount of the deduction.

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