What Is the Difference Between Gross and Federal Wage?

by Cam Merritt, studioD

A lot of money can come out of your paycheck between the time you perform work and the time you get paid for it. You start with "gross wages," but pre-tax deductions and several layers of taxation all take a bite. Because of the way the tax system works, different taxes apply to different portions of your income, which is where the term "federal wages" comes in.

Gross Wages

Your gross wages are the starting point for your take-home pay. If you have a job that pays you $10 an hour, and you work 40 hours a week, then your gross wages are $400 a week, or $800 for a two-week pay period. If you work on a salary basis and have a salary of $45,000 a year, then your gross pay is about $865 a week, or about $1,730 for a two-week pay period.

Taking Money Out

If you've ever received a paycheck, you're probably well aware that the money you actually "take home" is less than your gross wages. That's because your employer withholds money from your pay for taxes and, sometimes, for benefits such as health insurance or a pension plan. Many of these benefits aren't subject to income taxes, so the employer doesn't count them as part of your wages when figuring out how much of your paycheck to withhold.

Federal Wages

The portion of your pay subject to the federal income tax is called your federal wages. For example, the federal government doesn't tax most premiums for employer-provided health insurance or contributions to a 401(k) retirement plan. Say you earn $1,730 every two weeks, pay $3,900 a year in health insurance premiums and contribute 4 percent of your gross pay to a 401(k). The employer will take $150 out of your check for insurance -- $3,900 divided by 26 two-week pay periods a year is $150 -- and $69.20 for your 401(k) contribution. Your employer will figure your federal income taxes on the remainder: $1,510.80. That figure represents your federal wages.

On the W-2

At the end of the year, your employer sends you a W-2 form, which tells you how much you made and how much you paid in taxes. Box 1 of the W-2 always shows you your federal wages. This box may or may not be labeled "Federal Wages," but that's what it is. The typical W-2 form doesn't have a box for total gross wages for the year. If you need to know that amount, try looking at your final paycheck stub for the year. The year-to-date total for gross pay on that stub will be your gross wages. The W-2 form also has boxes for "Social Security Wages," "Medicare Wages," "State Wages" and "Local Wages." These amounts may differ from federal wages because these entities tax -- or don't tax -- different things. Social Security, for example, taxes money put into a 401(k) plan, so Social Security wages may be higher than federal wages. At the same time, though, the Social Security tax applies only to a portion of your income, so if you made, say, $250,000 last year, your federal wages will be higher than your Social Security wages.

About the Author

Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.

Photo Credits

  • Comstock/Comstock/Getty Images