And just like that, it’s tax season once more. Whether you’re a business owner, a married couple with a few dependents, or just an individual, tax season can prove to be an extraordinarily stressful time. There’s the matter of assembling any sources of income, anything that needs to be taxed, and that’s before the filing actually starts. When it comes to filing, a whole other list of questions and concerns can pop up, whether that be in regards to what you need to file, how you need to file it, or what actually shows up on certain tax forms.
At Payday HCM, we get it. We’ve had plenty of potential and current clients approach us with questions about their tax forms: why are my employees’ first check in January showing up as less than their last check in December? Why doesn’t my own W-2 match my last paycheck? Where would I see health insurance plan deductions on my W-2? And there are so many more questions. Luckily, with our team of industry experts, we’ve helped guide them through this stressful time and we’re to help you do the same.
In this article, we’ll go over four commonly asked questions about W-2s. We’ll dive in to a whole host of topics, from health insurance contributions to social security taxes, and answer your most pressing questions about each of these.
The four questions we’ll cover in this article are:
- Why Doesn’t My Health Insurance Show Up on My W-2?
- Why Doesn’t My W-2 Match My Last Paycheck?
- Pay Period vs. Check Date: Where Does the First Check In January Go?
- Why Is My Net Pay Less for the First Check in January vs. My Last Check in December?
By the end of this article, you will have the knowledge to tackle most problems thrown your way this tax season.
Why Doesn’t My Health Insurance Show Up on My W-2?
One common question that comes up a lot is why your health insurance plan may not show up on your W-2.
The Pre-Tax Advantage
If you’re looking at your W-2 and wondering where your health insurance deductions went, chances are, they were taken out before taxes. Most employer-sponsored health plans allow you to pay your premiums with pre-tax dollars, which lowers your taxable income. Since the IRS doesn’t tax that portion of your earnings, it doesn’t show up in your taxable wages on your W-2.
For example, if your salary is $50,000 and you contribute $3,000 toward health insurance, your taxable income shows only as $47,000. This means that you may not see your health insurance showing up because those contributions were taken out pre-tax.
Employer Contributions and Box 12
If you’re trying to track the total cost of your health insurance (including what your employer pays), check box 12 on your W-2 for code DD. This code shows the combined amount of what you and your employer contributed.
The information contained in box 12, though, is just for informational purposes and doesn’t affect your taxable income.
Why Doesn’t My W-2 Match My Last Paycheck?
Another question that comes up frequently is why your last paycheck may not match the information shown on your W-2.
What’s Taxed vs. What’s Reported
If you’ve ever compared your final pay stub to your W-2 and thought, “Wait a minute, these numbers don’t match,” you’re not alone. Like the section above, these discrepancies can often be attributed to pre-tax deductions.
When considering possible pre-tax deductions, you’ll want to consider things like health insurance, 401(k) contributions, and commuter benefits. If these benefits are pre-tax, they won’t show up within your taxable wages on your W-2. There are also non-taxable benefits, like if your employer reimbursed you for expenses or per diem payments that may appear on your paycheck but not on your W-2 because they’re not considered taxable income.
Bonuses and Payroll Adjustments
If you received a bonus or had any payroll adjustments at the end of the year, those might be taxed differently than your regular wages. Some companies apply a flat tax rate to bonuses, impacting how your total wages appear on your W-2 versus your paycheck.
To double-check, take your last pay stub and subtract any pre-tax deductions. Make sure to take note of any other non-taxable benefits as well, just to ensure all of your ducks are in a row.
Pay Period vs. Check Date: Where Does the First Check In January Go?
This is one question that comes up a lot, and without fully understanding the difference between check date and pay period, it can get confusing.
When You Work vs. When You Get Paid
This is where payroll timing gets tricky. Your W-2 reports when you were paid, not when you actually worked. So, if your last paycheck of the year is dated in January, it counts as income for the new tax year—even if the work was done in December.
Likewise, if you’re paid in December for work done in January, it will still count toward the current tax year. Really, the best way to think about this is simply not when you worked but what the check date is on your checks or pay stubs. That’s how it’s interpreted for your W-2 as well.
Year-End Planning Considerations
When it comes to planning for these differences between when you actually worked and your check date, you want to make sure any sort of contributions you’re planning to make near year-end are applying to the correct tax year.
Certain accounts, like a 401(k), may have yearly contribution limits. As such, it can be important to note when your contributions are going in—whether they’re contributing to your previous yearly limit or your new one.
Why Is My Net Pay Less for the First Check in January vs. My Last Check in December?
This is another question that comes up frequently and requires a bit of knowledge on how certain taxes and contributions work.
Social Security Tax and 401(k) Reset
If your first paycheck of the new year looks smaller than your last one in December, it’s likely as a result of the social security tax resetting for the new year or also your 401(k) contributions restarting. There’s a wage cap on Social Security tax each year (for 2024, the cap was $168,600). Once you hit that limit, those taxes stop coming out of your paycheck.
Once January rolls around, though, the cap resets, and those deductions start again—meaning a lower take-home pay. And, if you maxed out your 401(k) contributions by December, you probably saw a nice bump in take-home pay. But in January, those contributions start fresh, reducing your net pay again.
Tax and Benefit Adjustments
Each year, tax brackets and withholding amounts can change, which means payroll systems adjust accordingly. If federal or state tax rates go up, you might see a little more taken out of your check.
Plus, benefits like health savings accounts and flexible spending accounts also reset in January, so if you opted for payroll deductions, those will kick back in as well. It’s good to keep an eye on what your contributions are for certain accounts like a 401(k) just to ensure you’ll be ready for any possible decrease in take-home pay entering January.
Take On Tax Season With Confidence
Navigating tax season can feel overwhelming. Whether you’re someone who’s only filing their own individual taxes, a business owner ensuring their business files their taxes, or a couple jointly filing their taxes, there can be a whole host of questions that come up in the process. Sometimes, finding these answers can feel almost as difficult as the actual process of filing your taxes. It doesn’t have to be this way, though. With the information provided in this article, you’ll have all the information you need to enter tax season with confidence.
When it comes to taxes, though, there’s always more to know. Curious to dive deeper into taxes? Of course you are! Whether you’re an employer or an employee, it’s good to stay caught up on what payroll taxes are so that you are informed on the sorts of things that you can expect to come out of your or your employees’ paychecks.
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