Why does my employee's W-2 show lower earnings than the YTD on their last paycheck?

It's important to remember when helping your employees read their W-2s that the numbers printed on that form relate to taxable wages rather than gross pay. Basically, what that means is that pre-tax deductions (such as Section 125 and some retirement deductions) reduce the amount of income reported to the IRS, which is a definite benefit to your employees and to you!

Here's what you'll want to keep in mind to help reconcile the year-to-date pay on the check stub to the amounts on the W-2:

• Box 1: Federal Taxable Wages. Subtract any pre-tax insurance and/or retirement plan deductions from gross pay to reconcile.
• Box 3: FICA Taxable Wages. Subtract any pre-tax insurance deductions (but not retirement plans) from gross pay to reconcile. Caps at $127,200 for 2017.
• Box 5: Medicare Taxable Wages. Subtract any pre-tax insurance deductions (but not retirement plans) from gross pay to reconcile.

For more information regarding on how to read W-2s, check out this article.