Why Is My W2 Different From My Last Paycheck?

It is common for employees to notice differences between their last pay stub of the year and their Form W-2. This discrepancy can be confusing, as both documents relate to annual earnings. Several legitimate reasons typically explain why the figures on these two important financial records might not align.

Common Reasons for Differences

One frequent cause of divergence stems from pre-tax deductions. Many employees contribute to plans like 401(k) retirement accounts, health savings accounts (HSAs), flexible spending accounts (FSAs) for health or dependent care, or pay health insurance premiums through payroll deductions. These contributions are taken from gross pay before income taxes are calculated, reducing the taxable wages reported in Box 1 of your W-2 Form. While your pay stub’s year-to-date (YTD) gross pay reflects total earnings before deductions, the W-2 reflects earnings after these pre-tax amounts are subtracted for federal income tax.

Another reason for differences involves taxable benefits provided by an employer that are not paid as cash wages. For example, the cost of group-term life insurance coverage exceeding $50,000 is considered taxable income. This “imputed income” is added to your taxable wages in Box 1 of your W-2, even if not received directly. Other non-cash fringe benefits, such as awards or personal use of a company vehicle, are also considered taxable income and included in your W-2 wages.

The timing of pay periods can also contribute to discrepancies. A W-2 Form reports all wages paid within a calendar year (January 1 to December 31). If a pay period ends in late December but the payment is issued in early January of the following year, those wages will appear on the W-2 for the new year, not the prior one. Conversely, your final pay stub for a given year might include wages earned in December but paid in January, potentially causing its year-to-date figures to reflect earnings that will appear on the subsequent year’s W-2.

Non-taxable reimbursements or allowances, such as mileage or per diems, may appear on your pay stub as part of your total compensation. These amounts are not considered taxable wages and are not included in any taxable income boxes on your W-2. Such items contribute to the overall amount on your pay stub but do not factor into your reported taxable earnings.

Understanding Your W-2 and Pay Stub Details

To reconcile figures, understand the specific boxes on your W-2 and corresponding fields on your pay stub. Form W-2, the Wage and Tax Statement, summarizes annual earnings and tax withholdings. Box 1, “Wages, Tips, Other Compensation,” reports total taxable wages for federal income tax. This figure is often lower than your gross pay because it excludes pre-tax deductions like 401(k) contributions and health insurance premiums.

Box 3, “Social Security Wages,” reflects total wages subject to Social Security tax, up to an annual wage base limit that adjusts annually. Box 5, “Medicare Wages and Tips,” shows total wages subject to Medicare tax, with no wage base limit. Both Social Security and Medicare wages may differ from Box 1 wages because pre-tax deductions impact them differently.

On your pay stub, locate “Year-to-Date (YTD) Gross Pay,” which represents total earnings before deductions. Also look for “Year-to-Date (YTD) Taxable Wages” if provided, or examine cumulative amounts for various deductions. To approximate your W-2 Box 1 amount, start with your pay stub’s YTD gross pay and subtract total pre-tax deductions. This comparative process helps identify which deductions or benefits account for the differences.

What to Do if You Suspect an Error

After reviewing common reasons and comparing documents, if you still believe there is a W-2 error, re-examine your calculations and understanding. Ensure you have accounted for all pre-tax deductions, taxable benefits, and pay period timing. A thorough self-review can clarify perceived inaccuracies.

If a discrepancy persists, contact your employer’s payroll or human resources department. They are the primary contact for W-2 corrections and can investigate. When reaching out, have your final pay stub, W-2 Form, and any other relevant financial documentation available. Clearly explain the specific discrepancy.

If an error is confirmed, your employer can issue a corrected W-2, known as Form W-2c. This form corrects mistakes on previously issued W-2s, such as incorrect wage amounts or tax withholdings. Employers are obligated to provide accurate W-2s and must submit the corrected form to the Social Security Administration (SSA) and provide it to you.

If an employer is unresponsive or unwilling to correct an error, contact the Internal Revenue Service (IRS) for assistance. The IRS can send a letter to your employer requesting a corrected W-2. They can also provide Form 4852, “Substitute for Form W-2, Wage and Tax Statement,” which you can use to estimate earnings and withholdings for tax filing if you cannot obtain a corrected W-2 in time.