W-2 Wages: What They Are and How to Read Each Box

W-2 wages are the taxable compensation your employer paid you during the calendar year, reported to you and the IRS on Form W-2. The form breaks that pay into several boxes, and the numbers rarely match each other, because pre-tax deductions like a traditional 401(k) or health premiums reduce some taxes but not others. Once you know which box feeds which tax, the form stops looking like a wall of numbers and starts telling a clear story about what you earned and what was already paid in.

What Counts as W-2 Wages

The obvious pieces are base salary or hourly pay, overtime, commissions, and bonuses. The total also sweeps in several things people forget about.

Tips you reported to your employer are folded into your wages and show up in Box 1, Box 5, and Box 7.¹ If your employer allocated tips to you (common in restaurants when reported tips fall below a threshold), those allocated tips appear separately in Box 8 and are not included in the other wage boxes. You are still responsible for reporting them when you file.

Taxable fringe benefits count too. Employer-provided group-term life insurance above $50,000 adds the imputed cost of the extra coverage to your wages.² Personal use of a company vehicle is added as well, valued using IRS methods like the 72.5-cents-per-mile standard rate for 2026 or a flat $1.50-per-commute rule.³ Employer-paid educational assistance above $5,250 per year and dependent care assistance above $7,500 per year become taxable wages once they cross those limits.⁴

One boundary worth naming: only employees get a W-2. If your pay was reported on a Form 1099-NEC, you were treated as an independent contractor and nothing was withheld on your behalf.⁵

Why the Wage Boxes Show Different Numbers

The three main wage figures on your W-2 (Boxes 1, 3, and 5) usually differ, and the reason is pre-tax deductions. Not every deduction reduces every type of tax.

Traditional 401(k) deferrals reduce your Box 1 federal taxable wages but do not reduce your Box 3 Social Security wages or Box 5 Medicare wages.⁶ You save federal income tax now but still pay full FICA on what you deferred. These deferrals appear in Box 12 with Code D.⁷

Roth 401(k) contributions behave differently. Because the money goes in after tax, Roth deferrals do not reduce Box 1 at all. They show up in Box 12 with Code AA.⁶

HSA contributions and Section 125 cafeteria plan benefits (pre-tax health premiums, health FSA, dependent care FSA) get broader treatment. They typically reduce Boxes 1, 3, and 5, meaning they lower federal income tax, Social Security tax, and Medicare tax.⁷⁸ HSA amounts show up in Box 12 with Code W.

So the hierarchy usually looks like this: Box 5 is the highest (Medicare has no cap and little escapes it), Box 3 is next (same base as Box 5, but capped at $184,500 for 2026), and Box 1 is the lowest (reduced by both the triple-benefit deductions and the 401(k)).⁹

Reading Each Box on Your W-2

The form has more than twenty labeled boxes. These are the ones that drive your tax return and the ones most likely to contain errors.

Box 1 — Federal Taxable Wages

This is the number that flows to your Form 1040. It is your gross pay minus pre-tax deductions such as traditional 401(k) contributions, HSA contributions through payroll, and cafeteria plan benefits. It is usually the smallest of the wage boxes.

Box 2 — Federal Income Tax Withheld

The total federal income tax your employer sent to the IRS during the year, based on the elections you made on Form W-4.¹⁰ Unlike FICA, this amount is something you can adjust at any time by submitting a new W-4.

Box 3 — Social Security Wages

The portion of your pay subject to the 6.2% Social Security tax, capped at $184,500 for 2026.⁹ Wages above the ceiling are exempt from Social Security withholding. Traditional 401(k) deferrals do not reduce this number.

Box 4 — Social Security Tax Withheld

Should equal exactly 6.2% of Box 3. If the math is off, flag it with your employer.

Box 5 — Medicare Wages

Total pay subject to the 1.45% Medicare tax. There is no annual cap, so Box 5 is usually the highest wage figure on your W-2.¹¹

Box 6 — Medicare Tax Withheld

At minimum, 1.45% of Box 5. Once your wages pass $200,000 in the calendar year, employers must start withholding an Additional Medicare Tax of 0.9%, and that extra amount is included here as well. There is no employer match on the additional 0.9%.¹¹

Boxes 7 and 8 — Tips

Box 7 shows tips you reported to your employer that were taxed through Social Security. Those amounts are already baked into Box 1. Box 8 shows allocated tips, which your employer assigned to you based on sales formulas rather than what you reported. Allocated tips are not in Boxes 1, 3, 5, or 7, and you have to report them on your return yourself.¹

Box 12 Codes You’re Likely to See

Box 12 uses letter codes for specific items. The ones that come up most often:

Code C — Taxable cost of group-term life insurance above $50,000. Already included in Boxes 1, 3, and 5.²
Code D — Traditional 401(k) elective deferrals. Reduces Box 1 but not Boxes 3 or 5.
Code AA — Roth 401(k) contributions. Does not reduce Box 1 because these are after-tax dollars.
Code W — HSA contributions made through payroll. Reduces Boxes 1, 3, and 5.
Code DD — Total cost of employer-sponsored health coverage. Purely informational and does not affect your tax liability.¹²

Boxes 15 Through 20 — State and Local

These lines show state and local wages, withholding, and the identifying numbers for the state and locality. The figures vary widely depending on where you work. Some states also require employee-paid disability insurance; where that applies, the amount usually shows up in Box 14 as an informational entry.

A Quick Sanity Check on Your Own Numbers

Take Box 5, subtract the amount shown with Code D, and you should land close to Box 1. If the gap is bigger than expected, the difference is almost always other pre-tax items that reduced Box 1 but do not get their own Box 12 line, such as pre-tax health insurance premiums or an FSA contribution. If Box 4 is not 6.2% of Box 3, or Box 6 is less than 1.45% of Box 5, something is wrong and your employer needs to look at it.

Getting these numbers right matters past this filing season. The wages reported on your W-2 are what the Social Security Administration uses to calculate your future Social Security and Medicare benefits.¹³ An understated wage figure today can trim a benefit check decades from now.

When Your W-2 Should Arrive, and What to Do If It’s Wrong or Missing

Your employer must furnish your 2026 W-2 by February 1, 2027.¹⁴ If you left a job during the year, the employer can hand it over any time after your last paycheck, but no later than that same date.

If you haven’t received the form by the end of January, check with your employer first. If it still hasn’t shown up by the end of February, call the IRS at 800-829-1040. Have your Social Security number, employment dates, and the employer’s name and address ready. The IRS will send the employer a letter requesting that the form be issued within 10 days.¹⁵

If the filing deadline arrives and you still have nothing, you can file using Form 4852, a substitute wage statement. You estimate your wages and withholding from your final pay stub, explain how you got there, and attach the form to your return.¹⁶ If the real W-2 shows up later with different figures, amend your return on Form 1040-X.

If the W-2 you received has an error (wrong Social Security number, wrong wage amount, missing Box 12 code), ask your employer for a corrected version, called Form W-2c.¹⁷ If they haven’t produced one by the end of February, the same IRS phone number applies, and the agency will contact the employer on your behalf. If you already filed using the wrong figures, wait for the W-2c and then file Form 1040-X to amend.¹⁵

1
Internal Revenue Service. Tip Recordkeeping and Reporting
2
Internal Revenue Service. Group-Term Life Insurance
3
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile
4
Internal Revenue Service. Employer’s Tax Guide to Fringe Benefits, Publication 15-B
5
Internal Revenue Service. Form 1099-NEC and Independent Contractors
6
Internal Revenue Service. Common Errors on Form W-2 Codes for Retirement Plans
7
Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
8
Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans
9
Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
10
Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
11
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
12
Internal Revenue Service. Reporting Employer-Provided Health Coverage on Form W-2
13
Internal Revenue Service. Topic No. 752, Filing Forms W-2 and W-3
14
Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026)
15
Internal Revenue Service. If You Don’t Get a W-2 or Your W-2 Is Wrong
16
Internal Revenue Service. Form 4852, Substitute for Form W-2, Wage and Tax Statement
17
Social Security Administration. Helpful Hints to Forms W-2c/W-3c Filing