Question

Kristen, a single taxpayer, receives two 2018 Forms W-2 from the two employers she worked for during the year. One Form W-2 lists her wages in Boxes 1, 3, and 5 as $18,700. Her other employer’s Form W-2 has $43,000 in Box 1 but $46,500 in both Box 3 and Box 5. Kristen participated in the second employer’s 401(k) plan. She also received health care from her second employer. Lastly, her second employer provided $30,000 of group term life insurance to Kristen.

a. What amount should Kristen report as taxable wages in 2018?
$

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The primary form of reporting wages to an employee is through Form W-2. An employee should receive a Form W-2 from an employer, each year, providing information about the wages paid, taxes withheld, as well as certain employee benefits. The employee uses the information provided on the Form W-2 when filing his or her individual income tax return.
b. What could explain the difference between Box 1 wages and Boxes 3 and 5 on her second employer’s W-2?

Answer 1

A) $61,700

B) Kristen's contributions ($3,500) to her employer's 401(k) plan cause the difference between Boxes 3 and 5, and Box 1 in Kristen's second W-2 Form.

Step-by-step explanation:

A) Kristen's taxable wages = Box 1 of the first W-2 Form: $18,700, plus Box 1 of the second W-2 Form: $43,000. If the group term life insurance was larger than $50,000, Kristen should have reported the premiums as part of her taxable income, but since the amount is lower ($30,000) it is not taxed.