Why is the income on my W-2 always 10k-15k LOWER than my calculated annual income?

[ealgeone]

Please tell me I'm not the only one with this problem. I feel so dumb.

Every year I turn down applying to benefits for my family because my income that I calculate (reg. paycheck x number of pay periods) looks super high. But then I get my W-2 and it shows an annual income that is 10k-15k LESS than anticipated based on the calculation above. Here's the latest example with my 2023 income:

Regular biweekly paycheck: $2620 (gross)

Biweekly pay periods in 2023: 26

Total calculated income (pay x # of pay periods): $68,120

Income listed on W-2: $53,526

That's about a $14,600 difference, and I am struggling to figure out why. I really want to understand because, as mentioned in the first sentence, this is preventing me from applying to benefits that would really help my family. For example, LIHEAP for my state says that a 4-person household qualifies if they make under $4600 a month. With my biweekly paychecks of $2620, we're at $5240/mo. But if you divide $53,526 by 12 months, you get $4460. My paystubs also show a YTD Gross Income higher than the W-2 I'm provided.

So.... What is it? And how the heck am I supposed to figure out my "actual" income that will be on my W-2 if my paystubs show something different? Are there certain things counted on my paystubs that aren't actually part of my true gross income? I also want to apply to several other programs but I can't risk being wrong and having to pay back benefits.

Additional information that might be helpful:

I'm a government employee. Here's the rest of my W-2 info:

Box 2: $133

Box 3: $0

Box 4: $$0

Box 5: $62,969

Box 6: $913

Skipping 7 - 11 because they are all $0

Box 12a: Code L, $1558

Box 12b: Code C, $94

Box 12c: Code EE, $600

Box 12d: Code DD, $22,386

Any help/insights are greatly appreciated. And again, I don't think I'm the only one with this issue so hopefully this discussion helps others too.

 

[nae64]

@ealgeone Box 1 is your salary (Gross) minus 401k/457/403, any pre-tax benefits, and HSA. You’re not being taxed on that missing ~$14k income.

 

[kir081315]

@ealgeone

Box 1 reports your total taxable wages or salary for federal income tax purposes. The number includes your wages, salary, tips you reported, bonuses and other taxable compensation. For example, taxable fringe benefits such as group term life insurance will be included here. But Box 1 does not include any pre-tax benefits, such as savings contributions to a 401(k) plan, 403(b) plan or health insurance.

(Emphasis added)

Source

 

[raeeldri]

@ealgeone Its because of all your "before tax" deductions.

Health insurance and 401k are two of the biggest "Deductions".

Compare it with your pay stub, what does you pay stub show?

 

[lizzier]

@ealgeone For income-based welfare, they typically use gross income, although I suppose that might be state-dependent. If they used MAGI, people could funnel much more of their income through retirement accounts and get those benefits. So, yes, they will almost certainly use your actual gross biweekly (or other period) income, not the taxable income on your W2.

 

[ealgeone]

@lizzier That makes sense, thank you!

 

[lizzier]

@ealgeone Obamacare subsidies are the one common exception. People can get their MAGI down to get subsidized health insurance, even if their gross income would be too high.

 

[havila51]

@ealgeone This document will probably help you. It basically says to take the Gross YTD from your last paystub of the year, and subtract out several YTD pretax amounts (it's on the document). That will probably get you the reconciliation you're looking for.

 

[davidbb]

@ealgeone Taxes. Social security. Gross income is the number you made before you paid out all of that. Net income is what you actually got after that was paid out each check.

 

[dontgiveup230]

@davidbb Box 1 doesn't exclude taxes or SS taxes. It excludes pretax benefits like health insurance and HSA/FSA, as well as traditional (tax deferred) retirement contributions (401K/403B/TSP/pension contributions).

 

[truefreedom56]

@ealgeone None of the the items on the W-2 quite matches annual income:

• Box 5 is income subject to Medicare tax. Most income is included, but a few benefits such as health insurance are removed.
• Box 3 is income subject to Social Security tax. This is usually the same as Box 5, but would be $0 if you have a government job that is not part of Social Security.
• Box 1 is income subject to regular income tax. A larger selection of benefits are removed from this, including most retirement savings.

As to the missing income, I would guess:

• $5151 in health insurance premiums deducted from your pay. This may seem like a lot, but the value in code DD indicates the total cost of your health insurance was $22386. Most of this was paid separately by the employer (which really is part of your compensation too though it's not part of income for benefits purposes).
• $9443 in other benefits such as retirement contributions. I would presume these are mainly non-elective contributions to the pension, although that amount does seem rather high.

I would suggest looking at pay stubs carefully to get a better idea of what is deducted.