Taxable income is your wages after qualifying pretax or nontaxable deductions. Your W-2 form shows your taxable wages, which you need to file your federal tax return with the Internal Revenue Service. If you do not have a W-2, you may file your return using Form 4852 as a W-2 substitute. You must include your taxable income for federal income tax, Social Security tax and Medicare tax purposes on Form 4852. You may obtain taxable income from your last pay stub for the year.
Check the year-to-date section of your last pay stub for your annual earnings and nontaxable or pretax deductions, such as a section 125 medical or dental plan or flexible spending account. If you have such deductions, your year-to-date earnings likely include your entire pay, before those deductions were made. In this case, the year-to-date figure is not your taxable income. If you have no pretax or nontaxable deductions, then all of your year-to-date income represents your taxable income.
Subtract nontaxable or pretax deductions from the annual gross pay, if applicable. Assuming that your annual year-to-date gross is $50,000 and your section 125 medical and dental premiums totaled $2,600 for the year, your federal taxable income is $47,400, if those are the only nontaxable deductions that you have.
Determine Social Security and Medicare taxable wages by subtracting section 125 deductions from gross pay, but including traditional 401(k) contributions. Specifically, section 125 plans are not subject to Social Security tax and Medicare tax withholding, but traditional 401(k) contributions are. Assuming that the annual gross is $40,000, section 125 premiums are $1,800 and traditional 401(k) contributions are $8,000, your taxable wages for federal income tax purposes are $30,200. However, for Social Security and Medicare tax purpose your taxable income is $38,200.
- Traditional 401(k) contributions are not subject to federal -- and in most cases state or local -- income tax withholding. However, those taxes apply when you withdraw your money from the plan.
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