How To Compute Your Paystub
Often, people do not begin with the tax process if there is no W2 yet. After all, the information you need for your tax return is on the W2 form. But what if you do not have a W2 yet? It is okay not to wait for your W2. Your paystubs actually contains information that are in your W2. We will teach you now how to calculate W2 wages using a paystub.
What is 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. Hence, the paystub lists your net earnings or the actual amount of money you will receive.
Definition of a W-2.
A W-2 is a tax form that contains details about the taxes withheld from your paycheck for the year. This is also an integral part of filling out the tax return.
Calculate W-2 Wages from a Paystub.
Waiting for your W-2 forms that contain the taxes withheld from your salary and you annual net income is not necessary considering that you can calculate for your W2 wages through 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. Below are the steps in doing so.
1. Find your Gross Income.
The first step is finding your gross income which is equal to the total amount of your earnings before all deductions and tax withholdings. For most, this is equal to your hourly rate times the number of hours you’ve worked in a week. The paystub has this also including your overtime hours, bonuses, and commissions.
Deduct Wages That Are Non-Taxable.
Once you have computed for your gross income, the next step is to subtract from it your non-taxable wages. Wages you received that do not have federal taxes, state taxes, and income taxes are called non-taxable wages. Gifts, employer insurance, disability wages, and partnership income are common examples of nontaxable wages.
3. Compute For Other Deductions.
There are people who are eligible for pretax deductions that lessens their taxable income. Life insurance, retirement accounts, transportation programs, employer benefits, and health benefits are examples of pretax deductions. 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.Determine Taxes For The Year.
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.