Taxes on Social Security and Medicare Wages *401k does not reduce gross pay for calculating Social Security and Medicare taxes.
What is Bob’s taxable income for Social Security and Medicare? He has a medical deduction of $1,500, and he contributes 10% of his income to his 401k. Bob gets a semi-monthly auto allowance of $1,000. On this paycheck, he earned $8,000 in salary. Gross Pay (Including tips and taxable fringe benefits)Įquals: Social Security and Medicare taxable wagesįor Social Security and Medicare, deferred income (401k, 403b, Simple IRA’s, etc.) is considered taxable and not subtracted from gross pay.īob is paid semi-monthly. The taxable wages for Social Security and Medicare taxes are defined below: Social Security and Medicare taxes go hand in hand because the taxable wages for these two taxes are generally the same. Similarly, Box 5 represents Medicare wages, and Box 6 are the taxes on those Medicare wages. Most plans do not include taxable fringe benefits in the calculation.īox 3 on the W2 forms represents Social security wages and Box 4 are the social security taxes on those wages. *401k is calculated based on the definition of the specific 401k plan. What’s Bob’s taxable income for federal withholding? The IRS Publication 15-B – Fringe Benefits document includes a detailed chart of how specific fringe benefits are treated for tax purposes:īob is paid semi-monthly. Items such as 401k loan repayments, garnishments, company loan repayments, and union dues won’t reduce your taxable wages. Only those deductions specified by the IRS have an impact on taxes. Subtract: deferred income (401k, SIMPLE IRA, 403b, etc.)Įquals: Federal Income Tax wages Should all Deductions Reduce Taxable Income? Subtract: Section 125 deductions (medical, dental, vision, dependent care, pre-tax commuter benefits, etc.) Start with gross Pay (Including tips and taxable fringe benefits) The pay period of the check is unimportant what matters for W2 forms purposes is the actual check date.įederal Income Tax wages are determined with each paycheck and are calculated as follows:
Based on IRS guidelines, this will include all paycheck dates from January 1st through December 31st of the W2 year. Next up… W2 Forms: Box 1 and Box 2īox 1 shows your Federal Income Tax Wages for the year, and Box 2 shows the amount withheld from those wages for the year. It’s important to make sure that your name and social security number (box a) on the form is correct. The first place to start when you receive your W2 is with your personal information. It’s good to understand how your paychecks are reflected in your W2 forms, so in this two-part series, we’re going to take an in-depth look at the information on W2 forms. This form is required by your employers to document your annual wages and taxes from your paychecks. However, one document that has stayed fairly consistent, and will most likely continue to do so, is form W2. The rules are unnecessarily complex, difficult to understand, and many of them will change before you file your next round of taxes in 2019.
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