Gross Pay – nontaxable wages [ HSA, Medical premium, Dental premium, uniform allowance] – Tax deferred wages [ Traditional retirement plan]
Example
Gross pay 3,000
Non taxable wages 200 [HSA] + 150 [Medical] + 50 [ Dental] + 10 [ Uniform allowance]
Tax-deferred wages 500 [ 401 K ]
So your Taxable wages = 3000-200-150-50-10-500
The final number 3,000 – 910 = 2,090
The next step is to calculate your AGI or Adjusted gross income… A lot of tax saving tricks are based on this number such as eligibility to contribute to traditional IRA.
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