Your W-2 wage figures can differ because Boxes 1, 3, and 5 do not measure the same tax base. Box 1 reports wages for federal income-tax purposes; Box 3 reports Social Security wages; and Box 5 reports Medicare wages. A difference is not automatically a mistake. The useful test is whether each figure matches the corresponding payroll records after accounting for deductions and the Social Security wage limit.
What Boxes 1, 3, and 5 measure
Think of the three boxes as separate answers to separate reporting questions, rather than three versions of gross pay. Box 1 is the wage amount subject to federal income tax and is used in reporting wage income on your federal return. It may be less than your gross salary because some payroll deductions reduce federal taxable wages.
Box 3 is the amount of your pay subject to Social Security tax, while Box 5 is the amount subject to Medicare tax. These wage bases can differ from Box 1 and from each other. Your gross pay on a pay statement is a starting point for comparison, not a number that must appear unchanged in every W-2 wage box.
| W-2 box | What it reports | Useful comparison |
|---|---|---|
| 1 | Federal income-tax wages | Federal taxable wages on your final pay statement |
| 3 | Social Security wages | Payroll's Social Security wage total |
| 5 | Medicare wages | Payroll's Medicare wage total |
Why the wage figures can differ
A traditional 401(k) salary deferral is a common reason Boxes 1 and 3 or 5 do not match. Those elective deferrals generally reduce wages subject to federal income tax, so Box 1 can be lower, while the deferred amount remains part of Social Security and Medicare wages. For example, if your pay statement shows regular wages and a traditional 401(k) contribution, the contribution may explain why Box 1 is lower than Boxes 3 and 5.
Other deductions may affect more than one wage base. Certain benefits provided through a cafeteria plan can be excluded from multiple wage calculations, but the treatment depends on the particular benefit and how it is provided. A health-benefit deduction, retirement contribution, and other payroll item should not all be assumed to change the same W-2 boxes. The itemized payroll detail is more informative than the deduction's label alone.
Boxes 3 and 5 can also diverge for an employee whose Social Security wages reach the annual wage limit. Social Security wages are subject to that limit; Medicare wages are not capped by it. As a result, Box 3 may be lower than Box 5 in that situation. The limit applies to Social Security wages, not to the employee's overall gross pay or Medicare wage total.
Keep wages separate from tax withheld
W-2 withholding boxes show payroll payments toward tax, not additional wage measures. Box 2 is federal income tax withheld, Box 4 is Social Security tax withheld, and Box 6 is Medicare tax withheld. They answer how much tax was paid through payroll rather than how much wage income was reported in Boxes 1, 3, and 5.
Withholding is a payment credited when you file; it is not the final calculation of your federal tax liability. The result on a tax return also depends on the rest of the return, including other income and applicable deductions or credits. Therefore, a withholding figure that seems large or small compared with a wage box does not by itself establish that the W-2 wage figure is wrong.
Reconcile the box that looks wrong
Compare like with like before deciding a W-2 needs correction. Use the final pay statement for the year and payroll's year-to-date totals, since a single paycheck will not represent annual wages. Then work through the relevant box:
- For Box 1: compare it with federal taxable wages on the final pay statement. Account for items such as traditional 401(k) deferrals that can reduce federal income-tax wages.
- For Box 3: compare it with the Social Security wage total and consider whether the annual wage limit explains a lower amount.
- For Box 5: compare it with the Medicare wage total, which may differ from both federal taxable wages and Social Security wages.
- For withholding boxes: compare each amount with the corresponding year-to-date tax withheld, not with gross pay or a wage box.
If a specific figure still conflicts with payroll records after that comparison, ask the employer to review the W-2. If a correction is needed, the employer can issue Form W-2c; do not alter the employer's form yourself. For a local point of reference, see Central Florida Tax Preparation.