W-2 Shows Local Wages 23% Lower Than State/Federal - Why the Huge Difference?

I'm totally confused about my wife's tax situation right now. She just got contacted by our local tax department requesting more information, so she sent them her 2023 W-2. When I looked at it today, I noticed her local wages are about 23% LESS than what's shown for state and federal wages. The local tax people sent back a notice saying: "We are unable to determine from the Form W-2 the reason why the state wages appear higher than those reported taxable for local purposes. We recalculated your tax liability using the state wages figure and have determined the amount due that is shown below." I'm completely baffled by this difference. She didn't move during the tax year, and there's nothing unusual about her withholdings. Her federal Medicare wages are almost identical to her state wages (except for a small group term life insurance withholding not included in state wages). She contacted her tax preparer who seemed confused and unhelpful. Should we just pay the extra amount they're saying we owe? Or should we push back and try to figure out what's going on with her former employer and why they reported such different wage amounts? It seems like a huge discrepancy!

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19 comments

Dylan Hughes

•8M

This is definitely something worth investigating before paying. A 23% difference between local and state/federal wages is significant and unusual. Most likely, there's an error on the W-2 itself. The most common explanation would be that her employer incorrectly reported her local wages. If she worked the entire year at the same location and didn't move, there's no logical reason why local wages would be lower than state/federal wages by such a large percentage. Employers occasionally make mistakes when completing W-2 forms, especially with local tax reporting which can be more complex. I'd recommend gathering all her pay stubs for the year and adding up the gross income shown on them. Then compare that total to what's reported on the W-2 for federal, state, and local wages. This will help determine which number is correct.

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Dylan Hughes

•8M

If you discover the W-2 is incorrect, the first step is to contact the employer and request a corrected W-2 (called a W-2c). Document all your communication attempts in case you need to prove you tried resolving this directly with them. If the employer is unresponsive after multiple attempts, you can contact the IRS directly at 800-829-1040. Provide them with your information, your employer's information, and documentation of your actual wages (pay stubs). The IRS can then reach out to the employer on your behalf. In the meantime, you should still file your taxes using the correct information from your pay stubs, not the incorrect W-2. Attach Form 4852 (Substitute for Form W-2) to your return, which allows you to report your actual wages when you can't get a corrected W-2.

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Sofia Rodriguez

•8M

After dealing with a nearly identical situation last year, I found an amazing AI tool that saved me hours of frustration. I had a similar W-2 discrepancy between state and local wages (mine was about 18% off), and I was getting nowhere with my employer. I uploaded my W-2 and all my pay stubs to https://taxr.ai and it automatically identified the exact discrepancy and generated a detailed report explaining the error. The tool compared all my pay periods and pinpointed which paychecks were being incorrectly calculated in the local wages box. I was able to take this report to my employer with clear evidence of the error, and they finally issued a corrected W-2c. The system also generated a letter I could send to my local tax authority explaining the situation while I waited for the correction. Saved me so much stress trying to figure it all out myself!

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Sofia Rodriguez

•8M

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Sofia Rodriguez

•8M

The tool works by using document analysis to detect patterns and discrepancies. It compares all the numbers across your pay stubs and tax forms, then applies tax rules to identify likely errors. It doesn't just flag differences - it explains why they don't align with standard tax calculations. And yes, it works with 1099 forms too - it can compare reported income against your own records. Regarding security concerns, I was hesitant at first too. The system uses bank-level encryption and doesn't store your actual documents after analysis. You can also black out your SSN and address before uploading if you're extra cautious. I researched it pretty thoroughly before using since I was dealing with sensitive tax info. They explain their security protocols in detail in their FAQ section.

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Ava Thompson

•8M

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Miguel Herrera

•8M

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Miguel Herrera

•8M

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Connor Murphy

•8M

I need to update my previous skeptical comment about Claimyr. After continuing to fail reaching the IRS myself, I reluctantly tried the service yesterday afternoon. To my absolute shock, I got a call back this morning with an actual IRS agent on the line - after trying unsuccessfully to reach them for over a month on my own. The agent was able to confirm that my situation (also a W-2 with incorrect local wages) was a common employer error. She explained that when employers use certain payroll systems, they often misconfigure local tax jurisdictions or apply incorrect local tax rules. The agent sent me Form 4852 to fill out and said this would allow me to file with the correct wage information while they contact my employer about issuing a W-2c. I'm still amazed this actually worked after all my failed attempts. The 45-minute conversation with the IRS agent gave me more useful information than weeks of researching online and emailing my employer's unresponsive HR department.

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Yara Nassar

•8M

I work in payroll and see this issue regularly. The most common reason for local wages being lower than state/federal is that certain types of compensation are exempt from local taxes but not from state/federal. Things like: - Retirement contributions (some localities don't tax them) - Health insurance paid with pre-tax dollars - Transportation benefits - Certain types of bonuses or incentive pay - Non-resident work performed outside the locality Before assuming the W-2 is wrong, check if any of these apply. The 23% difference sounds high, but if she had substantial retirement contributions or other benefits, it's possible.

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Yara Nassar

•8M

That 401k contribution wouldn't explain a 23% difference by itself. At $7,500 on a $65,000 salary, that's only about 11.5% of her income, so there would need to be additional factors to reach 23%. The best way to verify is to request a detailed wage and tax statement from the payroll department. Unlike regular paystubs, this report typically shows exactly how taxable wages were calculated for each jurisdiction. Ask specifically for a "taxable wage breakdown by jurisdiction" or "tax basis report." Most payroll systems can generate this report, though smaller companies might be less familiar with it. Another approach is to check if your locality has any unusual exemptions. Some cities and counties have very specific rules about what compensation is taxable. You could contact your local tax authority directly and ask what types of compensation are exempt from local taxes but subject to state taxes. They deal with these discrepancies regularly and might immediately recognize what's happening in your case.

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