How to Understand W-2

After I started preparing 2018 tax return, I had a chance to study my W-2 form and pay slips. Now I can explain it in a simplified way. Here is the summary.

Federal Tax Return

W-2 Wage = Salary + RSU + Flex Credit + Employer’s HSA contribution

  • It is “Wages, tips, other comp.” in W-2.

  • It does not include employer’s 401k contribution.

Adjusted Taxable Wage for Medicare Tax = W-2 Wage - Pre-tax Insurances - ( Employer’s + My HSA contribution )

  • It is used to calculate my Medicare tax.

Taxable Non-wage Income = Taxable Interests (1099-INT) + Taxable Dividends (1099-DIV) + Taxable Capital Gains/Losses (1099-B) + Taxable Retirement Income (1099-R) + State/Local Tax Refund of previous year + other incomes

Adjusted Gross Income (AGI) = Taxable Wage + Taxable Non-wage income

Taxable Income = AGI - (Standard Deduction or Itemized Deduction) - Tax Exemptions

  • It is used to calculate my federal tax

CA State Tax Return

While CA State Tax return is different from Federal in many ways, my simple tax return had just one difference.

Taxable Wage = W-2 Gross Pay - Pre-tax Insurances

  • CA State does not exempt HSA contributions from Taxable Wage.

This web site explains the differences well.