Usually, people cannot commence with their tax process without their W2. After all, the information you need for your tax return is on the W2 form. How about if you do not have a W2 yet? It is not necessary for you to wait for your W2. There are actually relevant information in your W2 that can be found in your paystub. We will teach you how to calculate W2 wages using your paystubs in this page.
Definition of a Paystub.
Paystub is the check that you receive once your employer pays you your salary. It includes information about your pay, as well as the total amount you’ve earned as of the current pay period, and the total amount you’ve earned for the year-to-date payroll. It also shows the deductions and taxes that will be reduced from your earnings. Considering this, the paystub lists the net earnings of employees or the amount they will actually receive.
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. The paystub may not contain all information present in a W2 form but, it contains all sufficient information necessary for calculating your overall net income. Here’s how you do it.
Calculate for your Gross Income.
The initial step is computing for your gross income which is the total amount of money you have earned before any deductions or tax withholdings. Gross income is usually equal to the hourly rate multiplied by the number of hours worked in a week. The paystub has this also including your overtime hours, bonuses, and commissions.
Subtract Wages That Are Non-Taxable.
You should deduct the non-taxable wages you received from your gross income after you have calculated it. These non-taxable wages are the wages you’ve earned that do not have income taxes, federal taxes, or state taxes due. Examples of these wages are income from partnership, wages due to disables, insurance of employers, or gifts.
3. Compute For Other Deductions.
There are people who are eligible for pretax deductions that lessens their taxable income. Examples of such deductions are employer benefits, retirements accounts, life insurance, transportation programs, health insurance, etc. 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. Compute 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.
5. Compute Your W-2 Earnings.
To get your net income, subtract the taxes withheld from the income you computed in step three.