What Is Box 16 on a W-2? Defining State Wages

The Form W-2 summarizes an employee’s annual earnings and the taxes withheld by their employer. This document contains various boxes detailing compensation for federal, state, and local tax purposes, with Box 16 specifically reporting state wages.

Defining Box 16 State Wages

Box 16 on a W-2 reports the total wages, tips, and other compensation subject to a specific state’s income tax. This figure is the starting point for calculating an employee’s state tax liability on their annual return. The amount is determined by an employee’s gross wages, adjusted for items treated differently under state tax law compared to federal law.

The income reported in this box corresponds to the state identified in Box 15, which lists the employer’s state ID number. This number reflects the wages taxable by that particular state and forms the foundation for calculating state income tax. This calculation ultimately determines whether an individual owes more tax or is due a refund from the state.

Comparing Box 16 and Box 1

The wage amount in Box 16 (State Wages) can differ from the amount in Box 1 (Federal Wages). This discrepancy occurs because state tax rules for pre-tax deductions can vary from federal rules. Some deductions that lower federal taxable income are not recognized by certain states, resulting in a higher state taxable wage.

For instance, contributions to a 401(k) or 403(b) retirement plan reduce federal taxable income in Box 1. If a state does not allow this deduction, the contributed amount is added back to the state wage base, making Box 16 higher than Box 1. Contributions to Health Savings Accounts (HSAs) or other benefit plans can cause the same variance if they are deductible for federal but not state purposes.

Because of these potential differences, federal and state taxable incomes should not be assumed to be identical. An employee’s W-2 reflects these variances, with Box 1 adhering to IRS regulations and Box 16 adhering to the rules of the state listed in Box 15.

Common Scenarios for Box 16

One common scenario is finding that Box 16 is blank. This occurs when an employee works and resides in a state that does not levy a state income tax. In these locations, since there is no state income tax to calculate, there are no state wages to report.

Another situation is having multiple entries for Boxes 15, 16, and 17. This happens when an employee earns wages in more than one state during the tax year. Each state will have its own line item detailing the wages taxable by that state, requiring the employee to file tax returns in each of those states.

Box 16 and Box 17 are directly related. Box 16 shows the wages subject to state tax, while Box 17 shows the total state income tax the employer has already withheld from those wages. The withheld amount is based on the employee’s W-4 information and state withholding tables. When filing a state return, the Box 17 amount is credited against the tax liability calculated from the Box 16 income.