Is Amount on W-2 Net of Contributions to 401(K)?

by Michael Keenan
Your W-2 form documents your taxable income.

If you haven't been keeping perfect track of how much you were paid or how much you contributed to your 401(k) during the year, don't sweat it: Your employer will send you a W-2 in January that has all the details you need to file your taxes. On the W-2, your taxable income takes into account your traditional 401(k) contributions.

W-2 Reporting

Your 401(k) contributions are already accounted for when your employer reports your wages, tips and other compensation in Box 1 of your Form W-2. However, your 401(k) contributions aren't taken out of the Social Security wages reported in Box 3 or the Medicare wages in Box 5 because 401(k) contributions are still subject to those taxes. For example, if you contribute $4,000 of your $49,000 salary to your 401(k) plan, your Box 1 would show $45,000 while Boxes 3 and 5 would both show $49,000. In Box 12, your traditional 401(k) contributions are signaled by the letter "D."

No Double Deduction

Even though you can see the amount of your 401(k) contributions on your W-2, you don't get to write off that amount on your income tax return, because it has already been taken out of your income. For example, say that you made $49,000 at your job but put $4,000 in your 401(k) plan. Box 1 of your W-2 will only show $45,000 of taxable income, not $49,000, which means essentially that your $4,000 has already been deducted before the income even hits your tax return.

Retirement Savings Credit

Even though you don't get an extra deduction for your 401(k) contributions, you might qualify for the retirement savings credit. As of the 2013 tax year, you can earn a credit of up to 50 percent of your first $2,000 of contributions, for a maximum $1,000 credit. However, your income must fall below the annual limits for your filing status, which are $59,000 for joint filers, $44,250 for heads of household and $29,500 for singles.

Roth 401(k) Contributions

If you contributed to a Roth 401(k), those contributions are made with after-tax dollars, which means they aren't excluded from your taxable income -- and you can't deduct them either. On your W-2, Roth 401(k) contributions show up in Box 12 but are signaled by the initials "AA." Though you can't deduct these, you can use them toward figuring your retirement savings credit, if you're otherwise eligible. Plus, when you take qualified distributions in retirement, all the money comes out tax free.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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