Annual Assumptions Scenario #1 Scenario #2

Year: 2020 2020

Marital Status: Single Single
Gross Wages: 100,000 100,000
Tax Rate: 24% 24%
HSA Contribution: 10,000 10,000 "Payroll-deferred HSA contributions ar
FICA Contribution: 50% Employer / 50% Employee 100% Employer
Expense Reimbursement: 5,000 5,000

FICA - Gross wages do not include employer paid FICA (duh… think abou

[Calculation] Taxable Wages: Gross Wages + Employer Paid Social Security Tax + Employer Paid Medicare Tax
[Calculation] Medicare Wages:
[Calculation] Social Security Wages:

53,013 55,172
W2 1,714
Box 1 2,159

[W2 Box 1] Start with "Gross Wages," including tips and taxable fringe b
[W2 Box 10?] Subtract Section 125 deductions (medical, dental, vision, d
Equals Social Security and Medicare taxable wages
[W2 Boxes 12a - 12d] Subtract deferred income (401k, SIMPLE IRA, 403b
Equals Federal Income Tax Wages
 FICA Tax Guidelines Taxable Income Deductions
Type Maximum Rate Traditional 401(k) Contributions
Social Security Wages 137,700 12.40% HSA Contributions
Medicare Wages None 1.45% HSA salary-deferred contributions are speci

deferred HSA contributions are not subject to FICA, FIT, or FUTA."

Taxable Wages: Also referred to as adjusted gross income, these are the wages earned by an employe
Gross Wages: Wages earned by an employee before taxes, non-taxable wages, or non-taxable deducti
Think about the number that would be reflected on a job offer letter.
er paid FICA (duh… think about it… circular reference) - I thi An exception could be certain few non-cash fringe benefits which could be added to gross
This is considered "imputed income" and they are taxed the same as cash paid

Non-Taxable Wages
Expense reimbursements
Mileage reimbursements

https://www.irs.gov/pub/irs-pdf/p15b.pdf
Fringe Benefits: A form of pay for the performance of services
Any fringe benefit you provide Is taxable and must be included in the recipient's pay unless the law sp
You must include the amount by which the value of a fringe benefit exceeds the sum of (1) any amoun
uding tips and taxable fringe benefits
tions (medical, dental, vision, dependent care, pre-tax commuter benefits, etc.)

come (401k, SIMPLE IRA, 403b, HSA contributions, etc.)

Fringe Benefit Exclustion Rules
Exclusion rules that apply to fringe benefits exclude all or part of the value of certain benefits from be
In most cases, excluded benefits aren't subject to FIT witholding, FICA, FUTA, or Railroad Retirement T
Some examples of exclusion rule applicable benefits include:
Accident and health benefits
Achievement awards
Adoption assistance
Athletic facilities
De minimis (minimal) benefits
Dependent care assistance
Educational assistance
Employee discounts
Employee stock options
Employer-provided cell phones
Group-term life insurance coverage
Health savings accounts (HSAs)
 Lodging on your business premises
Meals

Cafeteria Plan
 y-deferred contributions are special in that they are exempt from FICA, FUTA, and FIT.

e the wages earned by an employee subject to FIT witholding.

able wages, or non-taxable deductions are accounted for.
b offer letter.
fits which could be added to gross income, such as personal use of a business vehicle and employer-paid gym memberships.
ey are taxed the same as cash paid to employees.

he recipient's pay unless the law specifically excludes it.

exceeds the sum of (1) any amount the law excludes from pay and (2) any amount the recipient paid for the benefit in a recipients pay.

e value of certain benefits from being included in the recipient's pay.

CA, FUTA, or Railroad Retirement Tax Act (RRTA) taxes and aren't reported on Form W-2.
Account Total Employer Paid Employee Paid
Gross Wages 56,435
Federal Income Tax Witheld 5,752
Social Security Tax Witheld 3,499 1,749 1,749
Medicare Tax Witheld 818 409 409

Taxable Wages 58,594 58,639

64,346 64,391

Taxable Cost of Group-Term Life Insurance over $50,000 3,377 <-- included in boxes 1,
Roth 401(k) Contributions 45

Total Salary = Taxable Wages (Box 3 or Box 5) + Nontaxable Wages + Pretax Deductions

Nontaxable Wages and Pretax Deductions are those excluded from FICA taxes. Such pretax deductions include Section 125 caf
 <-- included in boxes 1, 3 (up to social security wage base), and 5

ns include Section 125 cafeteria plans that include health and accident insurance, and dependent care and health savings accounts
The W2 Box 12 codes are:

A — Uncollected Social Security or RRTA tax on tips. Include this tax on Form 1040 Schedule 4 line 58.
B — Uncollected Medicare tax on tips. Include this tax on Form 1040 Schedule 4 line 58.
C — Taxable costs of group-term life insurance over $50,000 (included in W-2 boxes 1,3 (up to Social Security wages base), and
D — Elective deferral under a 401(k) cash or arrangement plan. This includes a SIMPLE 401(k) arrangement.
E — Elective deferrals under a Section 403(b) salary reduction agreement.
F — Elective deferrals under a Section 408(k)(6) salary reduction SEP.
G — Elective deferrals and employer contributions (including non-elective deferrals) to a Section 457(b) deferred compensation
H — Elective deferrals to a Section 501(c)(18)(D) tax-exempt organization plan.
J — Nontaxable sick pay (information only, not included in W-2 boxes 1, 3, or 5).
K — 20% excise tax on excess golden parachute payments.
L — Substantiated employee business expense reimbursements (nontaxable).
M — Uncollected Social Security or RRTA tax on taxable cost of group-term life insurance over $50,000 (former employees only
N — Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000 (former employees only).
P — Excludable moving expense reimbursements paid directly to a member of the U.S. Armed Forces. (not included in Boxes 1,
Q — Nontaxable combat pay. See the instructions for Form 1040 or Form 1040A for details on reporting this amount.
R — Employer contributions to your Archer medical savings account (MSA). Report on Form 8853:, Archer MSAs and Long-Term
S — Employee salary reduction contributions under a Section 408(p) SIMPLE. (Not included in Box 1).
T — Adoption benefits (not included in Box 1). Complete Form 8839:, Qualified Adoption Expenses, to compute any taxable an
V — Income from exercise of non-statutory stock option(s) (included in Boxes 1, 3 (up to Social Security wage base), and 5). See
W — Employer contributions (including amounts the employee elected to contribute using a Section 125 cafeteria plan) to you
Y — Deferrals under a Section 409A nonqualified deferred compensation plan.
Z — Income under a nonqualified deferred compensation plan that fails to satisfy Section 409A. This amount is also included in

AA — Designated Roth contribution under a 401(k) plan.

BB — Designated Roth contributions under a 403(b) plan.
CC — For employer use only.
DD — Cost of employer-sponsored health coverage.
EE — Designated Roth contributions under a governmental 457(b) plan. This amount doesn’t apply to contributions under a tax
FF — Permitted benefits under a qualified small employer health reimbursement arrangement.
GG — Income from qualified equity grants under section 83(i).
HH — Aggregate deferrals under section 83(i) elections as of the close of the calendar year.
 Security wages base), and box 5.

7(b) deferred compensation plan.

00 (former employees only).

mployees only).
s. (not included in Boxes 1, 3, or 5)
ting this amount.
rcher MSAs and Long-Term Care Insurance Contracts.

o compute any taxable and nontaxable amounts.

rity wage base), and 5). See Publication 525, Taxable and Nontaxable Income, for reporting requirements.
125 cafeteria plan) to your health savings account (HSA).

amount is also included in Box 1 and is subject to an additional 20% tax plus interest. See Form 1040 instructions for more information.

o contributions under a tax-exempt organization Section 457(b) plan.