By Grace Ferguson Updated August 08, 2018
Tax time is many people's least favorite time of year. The stakes are high, the forms can seem overwhelming and it can be stressful to find out if you owe money or get a refund. One of the main tax documents that you need to understand is your W-2. Your W-2 gives a lot of information, but the most important is that it shows your total income and your salary as taxable wages. If you have pretax deductions or nontaxable wages, these are not included in your taxable wages. To determine your total salary from your W-2, look at your taxable wages and then consider any nontaxable wages and pretax deductions you had during the tax year.
Calculating Total Salary
As a salaried employee, you are required to pay federal income tax, Social Security tax, Medicare tax, and, if applicable, state and local income tax. Knowing how to calculate your W-2 wages can help you to know your total salary and taxable income. To figure your total salary, you would first find the boxes on the W-2 that show the amount of your wages that was subjected to those taxes. Besides your salary, these boxes contain all other taxable compensations you received, such as bonuses, severance pay, commissions, prizes, awards and taxable business expense reimbursem*nts. You may use either of those boxes to calculate your total salary.
Taxable Wages in Box 1
Box 1 of the W-2 shows your taxable wages for federal income tax purposes. To arrive at your total salary using Box 1, add your federal taxable wages shown in that box to your nontaxable wages plus your pretax deductions that are exempt from federal income tax. Nontaxable wages include business expenses offered under an IRS-approved plan, such as lodging, meal and mileage reimbursem*nts. Pretax deductions include qualified pretax 401(k) contributions, group-term life insurance premiums that exceed $50,000 in coverage and adoption assistance benefits.
Boxes 3 and 5
Box 3 of the W-2 indicates your taxable wages for Social Security tax purposes. Box 5 shows your taxable wages for Medicare tax purposes. Both Social Security and Medicare taxes are commonly called FICA taxes because they are collected under the authority of the Federal Insurance Contributions Act. Your taxable wages for those two taxes might be the same, or they might differ because Social Security has an annual wage limit and Medicare has none. To calculate your total salary, obtain your taxable wages from either Box 3 or Box 5 and add the amount to your nontaxable wages and pretax deductions which are excluded from FICA taxes. Such pretax deductions include Section 125 cafeteria plans that include health and accident insurance, and dependent care and health savings accounts.
Boxes 16 and 18
Boxes 16 and 18, respectively, show your wages for state and local income tax purposes. If applicable, you may use the taxable wages shown in either of those boxes to calculate your total salary. Nontaxable wages and pretax calculations vary by state and local jurisdiction; for example, whereas one state might not count pretax deductions as taxable another might. To calculate your total salary, add your state or local taxable wages to your nontaxable wages and pretax deductions that are exempt from either of those taxes.
Other Tax Considerations
Determining your nontaxable wages and pretax deductions can be tricky, as each item has its own tax implication. You may ask your payroll department for a printout of your nontaxable wages and pretax contributions for the year and the taxes they are exempt from. Your last pay stub for the year might have this information. Your pay stub also likely shows your entire gross salary, which includes nontaxable wages and pretax deductions.
