 When looking at the income tax formula, we're focused on line one, that being income. Remembering that this single line might be comprised of many different types of income and may be coming from different forms and schedules feeding into this income line item. We're gonna be focused here on some of the major forms of income or types of income, including the good old W-2 employment income reported with the form W-2. When looking at the form 1040, this is the first page of the form 1040 where much of the income lines are represented on that first page, even as possibly they might be being pulled from other schedules as well. This is a schedule one, which has additional income and adjustments to it. We could have of course many other schedules that might eventually feed into the first page of the form 1040, the income line such as the schedule D, schedule C, schedule E, and so on, which we'll dive into in more depth in future presentations. For the most common type of income, the first thing that comes to most people's mind is employment income. If we're working as an employee, our employer is responsible for not only telling the IRS how much we have earned, but also doing the actual withholdings from us, reporting those withholdings as well as our income with the use of the W-2 form, not only to us, but also to the IRS. So this is a W-2 form 2022, and you've got your boxes up top, box one, two, three, four, five, six, seven, eight, on, on, down to like 12A or 20, for example. Let's just go through these boxes fairly quickly here to get an idea of what the W-2 looks like. The box one, wages tips, other compensation is gonna be the wages that are subject to federal income tax. Now, a lot of times when we look at the W-2, we might think about that first box as basically our overall compensation or income line. In other words, if someone was to ask you how much you have earned in the year, you might first think to look at that box one, but that box one might be different than box three and five, which are also other forms of basically income lines, meaning box two is the actual federal tax that's gonna be withheld that the employer actually took out of your paycheck, and that then is gonna be reflected on the tax return on the second page as withholdings. Box three is another income line. It might be the same number as in box one, but it might be a different number, for example, if you had some items that were subject to not being included as taxable income in box one, but might be subject to taxable income. You do keep financial records, don't you? Invoices, revenue reports, taxable income. I'm sorry, social security tax. So that's one reason you might have a difference also. The social security wages might go and hit the cap. So if you have high income earners, it's possible that the social security got capped and so the wages box might be higher than the social security box. And then the Medicare and then box four is the social security that is paid. Now remember that when you're filling out your income taxes, the main thing we're thinking about are these first two boxes. Wages subject to federal income tax and the federal income tax withheld. These will actually be reflected all the time on the forms 1040, whereas box three and four are payroll taxes, which if they've been withheld properly and we don't have any running into cap problems will not be reported on the form W2 because they've already been dealt with and this is just showing that information here. Although there are some cases where you might have something related to the social security tax. For example, if you had multiple W2s which resulted in someone paying more than their cap in social security, you would have to adjust for that. And then you have the Medicare, which is also a payroll tax. Off the payroll, you. So the Medicare doesn't have a cap on it like social security. So the Medicare is probably the most accurate box to actually look at when you're thinking about someone's actual compensation because box one might have been decreased by something like a 401K plan, whereas box five typically will not be. So when you wanna think about someone's overall compensation it might be more accurate to look at box five. And then you've got the Medicare tax that was withheld. Again, something that usually you don't have to deal with too much when you're doing the federal income tax form 1040 because it's already been taken care of with the payroll taxes, but we have it for that informational kind of purposes. And then box 12 is another kind of important box where you might have a item here which is gonna give you more information about what's actually being included. And you might have something like a retirement plan, a 401K and box 12 that would also be reflected as a reduction in taxable income in box one. We also have the retirement box right here that would be checked off if that was the case. So if this was checked off, you would expect possibly to see something in box 12. And then on the bottom, you've got the state taxes which is similar to box one and two up top. But on the stake side, if you have someone that is subject to state taxes. So just a quick look, this is a mock W-2 that was just generated, I generated in Excel for example. And you might imagine a situation where say box one, three and five are the same. That's because those are our wages and we didn't hit the social security cap and there's no basically a reduction in the wages for federal income tax from like a 401K. Therefore, these three numbers are the same. And then the federal income taxes here and the social security and the Medicare are here. You can also imagine a situation where for example, box one is higher than box three. Now, this is like an old cap. Actually, this isn't actually the social security cap but this is just to give you an idea that this could, you might see something like this because the social security is gonna hit a cap which goes up each year. And so if you're talking about high income earners then you might have a lower box three than box one and five. And then you might see a situation like this where box one is lower than box five for example because someone has a retirement plan which is quite common like a 401K which means that the income that they got of 150,000 a 10,000 of it is non-taxable income because they put it into a qualifying retirement plan instead of reporting that on the form 1040 like you would in like an IRA situation it's just reduced on the W-2. So it's useful to know what is going on. If you're just doing data input into the tax return you'll be able to just enter this into the tax return but you wanna be able to understand the interplay between box one, box 12 and then to be able to say yeah you actually earned compensation closer to 150,000 because the Medicare wages isn't hitting a cap as social security is although that might be an older cap here but the idea is there's a cap on that the Medicare doesn't have that cap and it's not being reduced by something that's reducing box one which is oftentimes like a retirement type of plan that's good information to be able to talk to somebody about and also to be able to understand the relationship between retirement plans like a 401K plan and say like someone taking an IRA deduction for example. Okay.