"Wages, tips and other compensation" is a phrase that may sound like financial jargon to many individuals. It is actually a phrase referring to the federal taxable income of an individual employee. Sometimes IRS forms make it a bit difficult to discern what information they are seeking. Knowing where to find your wages, tips and other compensation, and knowing what to do with the information once you find it will help the tax-preparation process go more smoothly.
An employer is required to furnish the federal government with the earnings and tax information for each employee. The employer must provide the same information to the employee by issuing IRS Form W-2, postmarked by January 31 of each year. The amount for wages, tips and other compensation is listed in Box 1 of Form W-2.
Wages, tips and other compensation describes the total federal taxable income reported by your employer. The total dollar mount is a combination of your gross pay, plus any cash you received, plus any noncash benefits. The cash-received portion usually refers to tips that you report, but can also include cash bonuses. A noncash benefit, for example, is group term health insurance paid by the employer.
Certain items do not have to reported as federal taxable income. These amounts are deducted from gross pay before a total amount is entered in Box 1 of your W-2. These items as include Dependent Care Assistance Plan contributions, tax-sheltered annuity contributions, OBRA 90 Alternative Retirement Plan contributions, elective deferred compensation, pretax transit passes, pretax retirement contributions, pretax health insurance premiums, and pretax health care spending account contributions and fees.
Use of Information
After you receive your Form W-2, look at the amount in box 1 and enter that number onto your federal tax return. If you are filing a Form 1040, you will enter it on line 7. If you are filing a 1040EZ, enter this amount on line 1. This income number is the one that will be used to determine the amount of tax that you still owe (if any) or the refund amount you are due. Box 1 of your W-2 also records the taxable income amount for many states. Refer to the individual income tax instructions of your particular state for more information about state taxable income.