Hello,
I do my parents taxes each year and I have a question about deferred compensation and how it affects the federal income tax withheld and box 2 on the W-2 form. Both parents work one full-time job each, 5 days a week. Father makes 103K, mother makes 87K. My mother has a deferred compensation plan and her employer withholds about 10% of her gross annual income to put toward the plan. When we get her W-2 at the end of the year, for at least the past 5 years, the federal income tax withheld in box 2 is significantly lower than it should be, it comes out to around 3K. This most recent W-2 for 2023, it is just under 3K. In the past two years, we have tried adjusting her W-4 to include additional income tax we wanted withheld and yet every year the number in box 2 still comes out significantly lower than it should be. They file as married filing jointly, only claim themselves as an allowance on their respective W-4s (writing 1), are paid every 2 weeks, both parents work for the state, neither makes any income in any other state, and are not exempt from any taxes. Not entirely sure if this is just due to her having a deferred compensation plan or something else but I would like to find out a bit more if possible. I have tried researching on my own and have not found much information so any guidance you can provide would be greatly appreciated!
Thank you!