Why Don’t My Federal Taxes Paid Year to Date Match My W-2?

Understanding why your federal taxes paid year-to-date don’t match your W-2 can be confusing. Many expect the numbers on their final pay stub to align perfectly with their tax form, but that’s not always the case. Differences often arise due to payroll timing, pre-tax deductions, and employer reporting practices.

Pay Stub YTD vs. W-2 Withholding

The year-to-date (YTD) federal tax withholding on your pay stub and the amount reported on your W-2 may not always match due to payroll schedules and employer reporting methods.

One common reason is payroll timing. If your last paycheck of the year is issued in late December but isn’t deposited until January, it will be reported on the following year’s W-2. The IRS requires wages to be reported based on the date they are paid, not when they are earned.

Pre-tax deductions also play a role. Contributions to employer-sponsored retirement plans like 401(k) or 403(b) accounts reduce taxable income for federal withholding. Deductions for health insurance premiums, flexible spending accounts (FSAs), and health savings accounts (HSAs) further lower taxable wages. Your pay stub may show total earnings before these deductions, while your W-2 only reports taxable wages after adjustments.

Federal Income Tax Calculations

Federal income tax withholding is based on taxable wages, filing status, and information from your Form W-4. Employers use IRS tax tables to determine withholding amounts.

Taxable wages exclude pre-tax deductions such as contributions to traditional retirement accounts. Employer-provided benefits like dependent care assistance programs (DCAPs) can also lower taxable income. These adjustments impact total withholding, which may explain discrepancies between your W-2 and year-to-date pay stub figures.

Employers calculate withholding using either the percentage method or the wage bracket method, as outlined in IRS Publication 15-T. The percentage method applies a fixed rate to earnings above a certain threshold, while the wage bracket method assigns a withholding amount based on income and filing status. Changes to tax rates or withholding tables, such as those implemented in 2024, can also affect the amount withheld.

Social Security and Medicare Withholding

Unlike federal income tax, which depends on individual withholding choices, Social Security and Medicare taxes follow fixed rates. These taxes, known as FICA (Federal Insurance Contributions Act) taxes, fund benefits for retirees, disabled individuals, and Medicare recipients.

The Social Security tax rate in 2024 remains 6.2% for employees, applied to earnings up to the wage base limit of $168,600. Any income above this threshold is not subject to Social Security tax. Medicare tax is 1.45% on all earned income, with an additional 0.9% surtax on wages exceeding $200,000 for single filers ($250,000 for married couples filing jointly).

Because these taxes are based on earnings, total withholdings may vary. Employees with multiple jobs may exceed the Social Security wage base, resulting in excess withholding. Since each employer withholds independently, workers earning above the limit across multiple jobs may need to claim a refund for overpayments when filing their tax return. Medicare tax, however, has no cap, meaning all earned income remains subject to the standard rate or the additional surtax if applicable.

Reasons for Discrepancies

Differences between the federal taxes withheld on your final pay stub and the amount on your W-2 often result from payroll adjustments made throughout the year. Changes to your Form W-4, such as updating allowances or electing additional withholdings, may not be evenly applied across all pay periods. Earlier paychecks may have had different withholding rates than later ones, causing variations in year-end totals.

Bonuses and other supplemental wages can also create discrepancies. Employers typically apply a flat 22% federal withholding rate on bonuses under $1 million, which may differ from the rate used for regular wages. If bonuses are combined with a normal paycheck, withholding may be calculated using the aggregate method, potentially leading to higher deductions. Employees receiving commissions, severance pay, or other irregular compensation may see similar fluctuations.

Payroll errors or corrections made after paychecks are issued can further impact reported amounts. If an employer discovers an earlier under-withheld amount, they may adjust subsequent paychecks, leading to year-end figures that differ from earlier pay stubs, even if the final W-2 is accurate.

Maintaining Organized Records

Keeping accurate financial records throughout the year helps prevent confusion when reconciling your pay stubs with your W-2. Reviewing your records beforehand can help you catch potential errors before tax season begins.

Retaining copies of each pay stub, along with any payroll adjustment notices, provides a clear record of how earnings and withholdings changed over time. If discrepancies arise, having detailed documentation makes it easier to compare reported amounts and address issues with your employer or payroll provider. Keeping records of any changes to your Form W-4, such as adjustments to withholding elections, can also help explain variations in federal tax amounts throughout the year.