How to Calculate W2 Income Tax Return

by Jane Meggitt ; Updated August 24, 2018

If you want a formal W-2 definition, keep in mind that it is actually known as your wage and tax statement. Before filing your tax return, you should make sure all of the information on the W-2 form is correct. If you spot any mistakes, report them to your employer immediately.

Understanding the W-2 Lettered Boxes

Every box on the W-2, whether lettered or numbered, holds specific information. The lettered boxes A through C contain your Social Security number, your employer’s federal identification number and your employer’s name, address and zip code. Some forms may contain a box D, which is simply there for payroll accounting purposes. Finally, boxes E and F are for your name and address. While it’s important that all of the information in the lettered boxes is correct, especially your Social Security number, it’s the numbered boxes that contain the financial information you need to calculate your taxes.

Understanding the W-2 Numbered Boxes

In W-2 box 1, you'll find all taxable salary or wages, while box 2 contains the federal tax amount withheld by your employer. In box 3, you’ll find how much of your salary was subject to Social Security taxes, and box 4 shows the amount of such taxes paid. There’s no income limit for Medicare taxes, and the total amount of earnings on which your employer paid such taxes appears in box 5, with box 6 showing how much you paid in Medicare taxes. If correctly withheld, the amount in box 6 equals 1.45 percent of the amount in box 5. If your job involves receiving tips, the amount you reported to your employer appears in box 7, with box 8 showing all tips you were allocated. You may find a verification code in box 9. That's part of a pilot program initiated by the IRS to authenticate W-2 forms, but only about 25 percent of taxpayers will find a number in box 9. For most, the box is blank.

If you had dependent care expenses reimbursed through a flexible spending account, that will appear in box 10. Pension plan distributions appear in box 11, and this amount is added to the wages and salary appearing in W-2 box 1. If your employer offered you a deferred compensation plan, that’s in box 12, next to a code identifying the type of deferred compensation. On box 13, you’ll find a check mark if you’re a statutory employee and wages weren’t withheld for income tax, or if you participated in an employer-sponsored retirement plan or received sick pay from your employer’s insurance company. You’ll find miscellaneous tax information in box 14, while box 15 contains your employer’s state identification tax number. The total amount of taxable wages you earned in a state is found in box 16, while box 17 states the amount of tax withheld. Box 18 includes all wages subject to state, city or local taxes, with the following box showing all taxes withheld from these entities. The last box lets you know exactly which state, city and local taxes you had to pay.

Keep in mind that with the Tax Cuts and Jobs Act, the W-2 form may change for 2018, but any changes are still in draft form and have not been made public.

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Calculating W-2 Income for 2018

Most people can calculate their net employment income from the W-2 form simply by subtracting the amount listed in W-2 box 1 from box 2. If you are married and filing jointly, you will find your net employment income by doing the math on both W-2 forms and then adding them together. However, income taxes are based on your adjusted gross income, which differs from earned income.

The Tax Cuts and Jobs Act, signed into law on Dec. 22, 2017, made major changes to the tax code. The standard deduction was raised to $12,000 per person, although someone filing as a head of household is eligible for an $18,000 standard deduction. This means far fewer people are likely to itemize deductions this year. Personal exemptions were eliminated, and the deduction for state and local taxes was capped at $10,000.

New graduated tax brackets also went into effect. The first bracket is 10 percent for single filers on income up to $9,525, married couples filing jointly up to $19,050 and heads of household up to $13,600. The next brackets are 12 percent on income starting at $9,525 for single filers, $19,050 for married couples filing jointly and $13,600 for heads of households; 22 percent for single filers starting at $38,700, married couples filing jointly starting at $77,400 and heads of households starting at $51,800; 24 percent for single filers and heads of households starting at $82,500 and married couples filing jointly starting at $165,000; 32 percent starting at $157,500 for single filers and heads of households and $315,000 for married couples filing jointly; 35 percent starting at $200,000 for single filers and heads of households and $400,000 for married couples filing jointly and 37 percent for all income above $500,000 for single filers and heads of households and $600,000 for married couples filing jointly.

2017 Tax Refund Calculator

In 2017, personal exemptions are $4,050 and all state and local property taxes are deductible. The standard deduction is $6,350 for single filers, $9,350 for heads of households and $12,700 for married couples filing jointly.

The 2017 graduated tax brackets are 10 percent for singles up to $9,325, heads of households up to $13,350 and married couples filing jointly up to $18,650; 15 percent up to $37,950 for single filers, $50,800 for heads of households and $75,900 for married couples filing jointly; 25 percent for single filers up to $91,900, $131,200 for heads of households and $153,100 for married couples filing jointly; 28 percent for single filers up to $191,650, $212,500 for heads of households and $233,350 for married couple filing jointly; 33 percent for single filers, heads of households and married couples filing jointly up to $416,700; 35 percent up to $418,400 for single filers, $444,550 for heads of households and $470,700 for married couples filing jointly and 39.6 percent for all categories of filers on income that exceeds the 35 percent bracket.

About the Author

A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including Sapling, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.

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