Finance

W-2 vs Last Pay Stub: What’s the Difference?

Salaries are one of the biggest and most significant expenses of the company. Calculation of earnings is a complex matter that involves following a large number of laws, by-laws, as well as frequent legal changes.

Taxes and contributions on wages represent a significant income of the state, therefore they are often subject to tax control. Also, human resources are the most important resources of every company, therefore companies take care of the satisfaction of their employees and how wages are calculated. Bearing in mind the above, companies often decide to entrust the calculation of wages to experts.

The end of the year and the beginning of the new one is very dynamic for the employees and directors of the HR sector because it is the period of calculating earnings and tax, as well as preparing the tax for the next year. Outsourcing payroll to a specialized team can save you time and money. New software solutions such as W-2 and Pay Stub can really help in this.

What many are interested in is what is the main difference between W-2 and Paystubs because it is very obvious that it exists. The first thing employees notice is that there is a difference between the W-2 they receive each year and the last pay stub. The first thing that is necessary is that you understand the difference between gross pay and W-2 wages. In other words, paystubs show total earnings at the end of the year, while W-2 is a summary of taxable earnings received in a calendar year.

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One of the primary differences between w-2 and paystub is that employees are provided with pre-tax benefits, and benefits include health insurance, AFLAC, and the like. Therefore, if the employee accepts this option, that is, applies for the health insurance plan before taxation, there will be an obvious difference in earned and taxable wages.

Every month, the company has the obligation to calculate and pay the workers’ wages – gross wages (net wages increased by taxes and contributions). The total salary calculation for one employee depends on various parameters. When it comes to the minimum salary, it depends on the type of contract, the number of working hours in that month, then on the salary increase, and other conditions.

Earnings calculation is not a simple calculation operation, but a complex process that must be handled by a qualified person. This is an extremely important and essential task of every employer that is closely related to his business. On the one hand, it reflects the relationship between the employer and the state (calculation and payment of monthly tax obligations – payment of taxes and social contributions), while on the other hand it strongly influences the maintenance of trust between the employee and the employer. Paystub (salary statement, pay slip, paycheck stub) shows us how much the employee earned – gross wages, which includes sick pay, vacation pay, holiday pay, commissions, regular wages, and so on. On the Internet, it is possible to find many sites from which you can download forms for paystub and W-2.

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Gross salary is the total cost of the employer for the salary of one employee. That is, it is the sum of net earnings and all the employer’s obligations to the state. Obligations include income tax and mandatory social security contributions. The employer has the obligation to pay the full amount for taxes and contributions, which in professional terminology are defined as contributions at the expense of the employee and contributions at the expense of the employer.

Net, on the other hand, represents basic earnings, which are obtained as a product of the price of labor and the number of working hours. His earnings can be increased, so when the increase is added to that basic earnings, the net earnings are obtained. The amount of wages paid to the worker at the end of the month, as wages, is net wages.

From this, we can conclude that the job does not have to be difficult if you choose the appropriate forms.

Also, through the W-2 form, you will understand how taxes affect the annual salary, i.e. it reduces it, and it can also show the workers how to get a tax refund. What is very important is that you pay attention to the personal data in the form – whether your name is spelled correctly, social security number, and so on.

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At the end of the fiscal year, the employer is obliged by law to submit to its employees a report on earned income and taxes paid – W-2 Form. As many employers as you had during the year, you will have as many of these forms as well. The employer is required by law to send W-2 forms to employees no later than January 31 of the following year. If you do not receive a W-2 form, you can file a tax refund with the last pay slip. The pay slip is a part of the paycheck that remains with you after cashing. The last pay slip contains the same information as the W-2 form and for this reason, it is very important that you save the last pay slips from all employers.

Then when you receive this form, know that it’s time to submit your taxes, that is, to collect the necessary documentation in order to solve this on time. If you are not very good with the paperwork, ask someone to explain it to you a little during the first year, so that later on you will be able to complete everything yourself.

Pay stubs are obtained with each payment and it is necessary to keep them in order to have all the data on the tax paid in a given period. Even if you have not paid taxes, it is good to keep them in order to show the total earned income.

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