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Advising Employees: Why Their Form W-2 Is Different From Their Last Pay Stub

May 10th, 2024 | 6 min. read

By Bret Asmussen

As a small business owner, you know that sometimes your employees are going to ask you questions about their tax forms. 

It’s a common misconception that their last pay stub of the year will always match their W-2, so how can you help them understand the difference?

At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. That means we’ve helped thousands of clients advise their employees on:

  • Why is the W-2 different than the last pay stub of the year?
  • Can you use your last pay stub as a W-2? If so, how?
  • Is there a pay stub to W-2 converter?

Why a W-2 Can Be Different From the Last Pay Stub

The difference between a pay stub and a W-2 is that the pay stub shows what the employee’s gross wages and earnings were, while the W-2 shows what the employee’s taxable wages were.

Many of the boxes on a Form W-2 are structured with taxable amounts in the odd-numbered boxes and the actual amounts withheld in the following even-numbered boxes. For example:

  • Box 1 is the income that’s taxable to the federal government, and box 2 is the amount of federal tax withheld.
  • Box 3 is the non-tipped income that’s taxable to Social Security, and box 4 is the amount of Social Security tax withheld from non-tipped income.
  • Box 5 is the income that’s taxable to Medicare, and box 6 is the amount of Medicare tax withheld.

Not all boxes fit the odd/even number boxes rule though. For example:

  • Box 16 is the income that’s taxable to the state government, and box 17 is the amount of state tax withheld.
  • Box 18 is the income that’s taxabe to the local government, and box 19 is the amount of local tax withheld.

How to Use the Last Pay Stub as a Form W-2

An employee’s last pay stub of the year can be used as their Form W-2 – in a way. 

Of course, we always recommend holding onto your tax forms as tightly as possible, but the pay stub can be used in theory. If one of your employees loses their W-2, your payroll provider may be able to issue a replacement.

The pay stub doesn’t always directly show your taxable wage on Form W-2, but it can be calculated. Let’s go into that in the next section.

Converting a Pay Stub to a Form W-2

Is there an easy converter that turns pay stub amounts into Forms W-2? Not that we have found, but that doesn’t mean you can’t manually convert it as long as you know what data is required for each box.

The Basics

Your final pay stub of the year will include the total amounts withheld for federal income tax (box 2), Social Security tax (box 4), Medicare tax (box 6), and state income (box 17) for that year. 

The taxable income may require some calculations. Pre-tax deductions reduce taxable income. The simplest version of this calculation is:

Taxable income = Gross income - Pre-tax deductions

This is true from virtually all pre-tax deductions and can be used to determine boxes 1, 3, 5, and 16, but there is one exception: pre-tax retirement plan contributions.

Retirement Plan Contributions

Pre-tax deductions often include contributions to retirement plans. These contributions lower taxable income for federal income (Box 1) and state income (Box 16) taxable wages. However, the amounts are still subject to FICA tax and therefore won’t affect Social Security (Box 3) and Medicare (Box 5) taxable wages. 

So, if you have pre-tax contributions to a retirement account, the amounts in boxes 1 and 16 will likely be lower than boxes 3 and 5.

Contributions to a Roth plan are post-tax, so they should not be factored into the taxable income equation.

Tipped Income

Tipped income is handled differently than other income on the W-2.  Instead of including tips in Social Security taxable wages (Box 3) it is reported separately in Box 7 for Social Security Tips.

Allocated tips are also reported differently on a W-2.  Allocated tips are income reported by an employer on behalf of an employee. This is in addition to tips the employee reported.

Boxes That Need More Information

There are boxes on the W-2 that may require more data to properly file a tax return. For instance:

  • Box 10 is the amount of dependent care benefits.
  • Box 11 is for contributions to nonqualified plans.
  • Box 13 has can denote a statutory employee, any contributions to a retirement plan, and any third-party sick pay. 

In addition, box 12 will need to show a wide range of amounts with a code explaining what the amounts represent. Generally, that will provide additional information about whether certain income is taxable or not. 

Tax Limits

Keep in mind that some taxes have limits. 

Let’s use Social Security as an example. Once an employee reaches a certain taxable threshold, the additional wages are not subject to Social Security tax, so they will not be included in box 3.

Never Have an Unanswered Payroll Question Again!

Now that you know about why a W-2 may be different than the year’s last pay stub, how someone can essentially use the last pay stub as a W-2, and how to convert a pay stub into a taxable wage, are you ready to check out payroll services?

If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:

Not ready to talk? That’s okay! First, learn more about what it’s like to work with CSI by clicking the image below:

Bret Asmussen

Bret began working at CSI in 2007. Over the years, he worked his way up from an entry-level marketing position to his current role of manager of our payroll service. Bret is largely responsible for the growth of our payroll division over the last several years. His previous experience and knowledge in sales and management are exemplified in his success here. Bret has a college degree in Computer Networking, a skill that certainly comes in handy in an office environment. Bret is also a Certified Payroll Professional (CPP). Fun Fact: As an active duty member of the United States Marine Corps, he served in Operation Desert Shield and Desert Storm.