Why Are My W-2 Wages in Box 1, 3, and 5 Different?

The Form W-2, Wage and Tax Statement, is a document employers must send to employees by January 31st each year. It reports your annual earnings, tax withholdings, and other compensation details from the previous year. This form provides the information needed to file your federal and state income tax returns.

Core Compensation and Federal Income Tax

The figure in Box 1, “Wages, tips, other compensation,” represents your total income subject to federal income tax. This amount includes your base salary, bonuses, tips, and other forms of compensation. Certain taxable fringe benefits, like group-term life insurance coverage over $50,000 or educational assistance exceeding $5,250, are also included. This Box 1 amount is the wage figure you will report on your Form 1040 federal income tax return.

The Box 1 amount is not your gross pay, as it has been adjusted for certain pre-tax deductions. These deductions, which lower your taxable income, include contributions to health insurance, flexible spending accounts (FSAs), and retirement plans. For example, if your gross salary is $60,000 and you contributed $5,000 to a 401(k) and paid $2,000 for pre-tax health insurance, your Box 1 wages would be about $53,000.

Box 2, “Federal income tax withheld,” shows the total federal income tax your employer paid to the IRS on your behalf. This figure is determined by the information you provided on your Form W-4. The amount in Box 2 is a record of payments already made, which you claim on your tax return to determine if you are due a refund or owe additional tax.

Social Security and Medicare Wages

Box 3, “Social Security wages,” reports the portion of your earnings subject to Social Security tax. This tax has an annual wage base limit, which is $176,100 for 2025. Once your year-to-date earnings surpass this threshold, your employer stops withholding the 6.2% Social Security tax.

Box 5 reports your “Medicare wages and tips.” Unlike Social Security, there is no wage limit for the Medicare tax, and all covered earnings are subject to the 1.45% tax. This difference is why the amount in Box 5 can be higher than in Box 3 for higher-income earners. For instance, if you earn $200,000, your Box 3 wages are capped at the annual limit, while your Box 5 wages will show the full $200,000.

The corresponding tax withholdings are in Box 4, “Social Security tax withheld,” and Box 6, “Medicare tax withheld.” For 2025, Box 4 should not exceed the maximum contribution of $10,918.20. Box 6 reflects the 1.45% tax on all Medicare wages, plus an Additional Medicare Tax of 0.9% on wages over $200,000 for single filers or $250,000 for those married filing jointly.

Certain pre-tax deductions affect these boxes differently. Contributions to a traditional 401(k) reduce your federal taxable income in Box 1 but do not reduce your wages for Social Security and Medicare purposes. Your Box 3 and Box 5 amounts may therefore be higher than your Box 1 amount. Pre-tax deductions for health, dental, and vision insurance, however, typically reduce the wage amounts in all three boxes.

Decoding Adjustments and Other Compensation

Box 12 uses specific codes to detail various types of compensation and benefits that adjust your gross pay. For example, Code D signifies elective deferrals to a 401(k) plan, which reduces the taxable income in Box 1. Code W reports employer contributions to a Health Savings Account (HSA), which are also excluded from federal taxable income.

Another common code is DD, which reports the total cost of employer-sponsored health coverage; this amount is not taxable and is for informational purposes. Other codes you might see include Code E for contributions to a 403(b) plan or Code T for employer-provided adoption benefits.

Box 14 is a catch-all category for employers to report information that does not have a dedicated box. Since there are no standardized codes, descriptions may vary by employer. Common items reported here include:

• State disability insurance taxes withheld
• Union dues
• Employer-paid tuition assistance
• Charitable contributions made through payroll deductions

If a description in Box 14 is unclear, contact your employer for clarification.

State and Local Tax Reporting

The bottom portion of Form W-2, Boxes 15 through 20, reports your state and local tax information. This section applies the federal reporting structure to the specific tax jurisdictions where you earned income. This provides the necessary details for completing your state and local tax returns.

Box 15 shows your employer’s state ID number, and Box 16 reports the total wages subject to state income tax. This amount may differ from your federal wages in Box 1 due to variations in state tax laws. Box 17 shows the total state income tax withheld during the year.

If you are subject to local income taxes, this information is in Boxes 18, 19, and 20. Box 18 shows wages subject to local tax, Box 19 reports the local tax withheld, and Box 20 provides the locality’s name. You might receive a separate Form W-2 for each state or locality where you worked for the same employer.