What Is Box 1 on a W-2: Wages, Tips, Other Compensation

The Form W-2, Wage and Tax Statement, is a document employers provide to employees annually. This form summarizes an employee’s total wages and the taxes withheld during the calendar year. It serves as a foundational record for individuals to accurately file their federal, state, and local income tax returns.

Decoding Box 1 Wages, Tips, Other Compensation

Box 1 on your W-2, labeled “Wages, tips, other compensation,” represents the total taxable income your employer paid you for federal income tax purposes. This figure includes your gross wages, salary, reported tips, bonuses, commissions, and other compensation.

This box also accounts for various taxable fringe benefits. For instance, the value of group-term life insurance coverage exceeding $50,000 is included here. Other examples are non-accountable expense reimbursements, personal use of an employer-provided vehicle, awards, and prizes. Distributions from non-qualified deferred compensation plans are also reported in Box 1 when paid out.

Conversely, Box 1 excludes certain pre-tax deductions that reduce your taxable income for federal purposes. These include contributions to retirement plans such as a 401(k), 403(b), or 457(b). Pre-tax health insurance premiums and contributions to Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs) are also excluded. This means the amount in Box 1 is often less than your gross earnings for the year.

How Box 1 Differs from Other Wage Boxes

The amount in Box 1 differs from amounts in Box 3 (“Social Security wages”) and Box 5 (“Medicare wages and tips”) due to varying tax rules. Box 1 details wages subject to federal income tax, while Box 3 and Box 5 reflect wages subject to Social Security and Medicare taxes, respectively. These differences reflect the distinct purposes of these taxes.

A primary reason for the discrepancy between Box 1 and Box 3 is the Social Security wage base limit. For example, in 2025, a maximum of $176,100 is subject to Social Security tax. Earnings above this limit are excluded from Box 3, even though they remain part of your federally taxable income in Box 1.

In contrast, there is no wage base limit for Medicare taxes. All your taxable wages, including those exceeding the Social Security wage base, are subject to Medicare tax and included in Box 5. Some pre-tax deductions, such as health insurance premiums or contributions to FSAs, reduce wages for all three boxes. However, pre-tax contributions to qualified retirement plans (like 401(k)s) reduce Box 1 wages but do not reduce wages for Social Security or Medicare purposes, creating further differences.

Using Box 1 Information on Your Tax Return

The amount in Box 1 of your W-2 is a primary figure used when preparing your federal income tax return. This number represents your total taxable wages for the year, forming the basis for calculating your federal income tax liability. You will transfer this figure directly to Line 1a, “Wages, salaries, tips, etc.,” on your Form 1040. Ensuring this amount is correctly entered helps compute your overall tax obligation or potential refund.