How to Find Taxable Income on Your W-2 Form
Master your W-2. Accurately identify all taxable income categories for precise federal, state, and local tax reporting.
The W-2 form, officially known as the Wage and Tax Statement, is an annual document employers issue to employees. This form summarizes an individual’s earnings and the taxes withheld from their paychecks throughout the year. It serves as the primary record for employees to accurately file their federal, state, and local income tax returns.
Federal Taxable Income
Your federal taxable income, which is the amount subject to federal income tax, is found in Box 1 of your W-2 form, labeled “Wages, tips, other compensation.” This figure represents your gross earnings minus certain pre-tax deductions. Box 1 includes your regular salary, wages, bonuses, commissions, and reported tips. It also accounts for various taxable fringe benefits, such as the value of group-term life insurance exceeding $50,000. While your pay stubs might show a higher gross amount, the figure in Box 1 reflects the income adjusted for federal tax purposes.
Other Taxable Income Categories
Beyond federal income, your W-2 also details income subject to other taxes. Box 3, “Social security wages,” reports the amount of your earnings subject to Social Security tax. This figure has an annual wage cap, meaning income earned above a certain limit is not subject to this tax. Unlike federal taxable wages, Social Security wages are not reduced by contributions to retirement plans, although they are affected by other pre-tax deductions like health insurance premiums.
Box 5, “Medicare wages and tips,” indicates the income subject to Medicare tax. There is no annual limit or wage cap for Medicare wages, meaning all earned income is subject to this tax. Similar to Social Security wages, Medicare wages are reduced by pre-tax deductions such as health and flexible spending accounts, but not by retirement plan contributions.
Box 16, “State wages, tips, etc.,” shows the amount of income subject to state income tax. This figure can differ from Box 1 due to variations in state tax laws regarding what income is considered taxable or what deductions are allowed.
Similarly, Box 18, “Local wages, tips, etc.,” reports income subject to local income taxes. This amount may vary from federal or state taxable wages based on specific local tax rules. Box 20 will identify the locality associated with these wages.
Understanding Pre-Tax Deductions
Pre-tax deductions, which are amounts subtracted from your gross pay before taxes are calculated, reduce your taxable income reported on your W-2. For federal income tax purposes, as reflected in Box 1, common pre-tax deductions include contributions to traditional 401(k) or 403(b) retirement plans. Other examples that lower your Box 1 income are pre-tax health insurance premiums, contributions to Flexible Spending Accounts (FSAs), and Health Savings Accounts (HSAs). While these amounts are part of your total compensation, they are removed before the federal taxable wage in Box 1 is determined. These deductions can also impact state and local taxable wages, depending on specific state and local tax regulations.