What W2 Deductions Are Taken From Your Pay?

Each year, employers issue Form W-2, the Wage and Tax Statement, a document that summarizes an employee’s total earnings and the amounts withheld for taxes and other deductions. This form serves as a record of both the income you have earned and the taxes you have already paid toward your annual obligation. Copies are sent to the employee, the Internal Revenue Service (IRS), and the Social Security Administration (SSA), creating an official account of your annual compensation. Understanding the figures on this form is the first step in navigating your personal tax return.

Mandatory Tax Withholdings

A significant portion of the deductions from your paycheck are compulsory tax withholdings. The federal income tax withheld is stated in Box 2 of your W-2. This amount is not your final tax bill but an estimated payment toward it, calculated based on the filing status, dependents, and other adjustments you claimed on your Form W-4.

Your W-2 also details your contributions to Social Security and Medicare, often grouped under the Federal Insurance Contributions Act (FICA). Box 4 shows the total Social Security tax withheld. This tax is calculated at a flat rate of 6.2% for the employee, but only on earnings up to a certain annual limit, known as the wage base. For 2025, this limit is $176,100, meaning any income earned above this amount is not subject to Social Security tax.

Box 6 reports the Medicare tax withheld from your pay, which is assessed at a rate of 1.45% on all of your wages with no income cap. High-income earners may be subject to an Additional Medicare Tax of 0.9% on earnings that exceed certain thresholds. Employers are required to start withholding this extra tax once an employee’s wages surpass $200,000 in a calendar year.

Your W-2 will also reflect any state and local income taxes withheld. Box 17 shows the total amount of state income tax withheld, corresponding to the state wages in Box 16. If you are subject to local taxes, such as city or county taxes, those amounts will be reported in Box 19, with the locality named in Box 20.

Pre-Tax Benefit and Retirement Deductions

Many deductions on a W-2 are for benefits that reduce your taxable income. These pre-tax deductions are subtracted from your gross pay before income taxes are calculated, which lowers the amount of your earnings subject to tax. This lower figure is what is reported in Box 1, “Wages, tips, other compensation.” Box 12 uses a series of letter codes to identify different types of these benefits.

Contributions to employer-sponsored retirement plans are a common pre-tax deduction found in Box 12. For example, your contributions to a traditional 401(k) plan will be reported using code D, while contributions to a 403(b) plan use code E. These amounts are subtracted from your gross pay, directly reducing the taxable wages shown in Box 1.

Another pre-tax benefit detailed in Box 12 is contributions to a Health Savings Account (HSA). If you make contributions to an HSA through payroll deductions, this amount will be reported with the code W. These funds are tax-deductible and can be withdrawn tax-free for qualified medical expenses. The amount reported with code W has already been excluded from your taxable wages in Box 1.

The amount reported in Box 10 represents funds you have set aside in a Dependent Care Flexible Spending Account (FSA). While the cost of employer-sponsored health coverage is reported for informational purposes in Box 12 with code DD, the premiums you paid for it on a pre-tax basis have already been excluded from the taxable wages listed in Boxes 1, 3, and 5.

Other Common W-2 Deductions

Box 14 on the W-2 serves as a catch-all for your employer to report items that do not have a designated spot elsewhere on the form. The descriptions used in Box 14 are not standardized by the IRS and are determined by the employer, so they can vary. If a description is unclear, you should contact your employer’s payroll or HR department for clarification.

Common examples of deductions you might see reported in Box 14 include:

• Union dues
• Payments for state-mandated disability insurance programs
• Charitable contributions made through payroll deduction
• Employer-paid tuition assistance
• The personal use of a company vehicle

Your W-2 also shows post-tax deductions. A key example is contributions to a Roth 401(k) plan, which are reported in Box 12 using codes AA or BB. Unlike pre-tax deductions, post-tax contributions do not lower your taxable income for the current year. The wages reported in Box 1 are not reduced by these amounts, meaning you pay taxes on that income now in exchange for tax-free withdrawals in retirement.

How W-2 Information Influences Your Tax Return

The figures on your Form W-2 are the foundational data for completing your annual Form 1040, the U.S. Individual Income Tax Return. The federal income tax shown in Box 2 of your W-2 represents payments you have already made throughout the year toward your tax bill. It is not the total tax you owe.

Your actual tax liability is calculated on your Form 1040 based on your total income, filing status, and any deductions or credits you are eligible for. The total withholding amount from your W-2 is then subtracted from this calculated liability. If your withholdings exceed the tax you owe, you are due a refund; if they are less, you will have a balance due to the IRS.

It is also important to understand the distinction between the deductions on your W-2 and the deductions you take on your tax return. Deductions for items like 401(k) contributions or health insurance premiums have already been accounted for by reducing your taxable wages in Box 1 of the W-2. You do not deduct these items again on your Form 1040.

The deductions on your tax return, such as the standard deduction or itemized deductions, are separate. These are subtracted from the taxable income figure reported in Box 1 to further reduce your overall taxable income. Mistaking W-2 deductions for Form 1040 deductions can lead to incorrectly filing your return.