What Is Line 1 on Your Tax Return? Wages, Tips, and Combat Pay

Line 1 on your tax return is where you report earned income from work on Form 1040. It splits into ten sub-lines (1a through 1i, plus the total on 1z) that cover W-2 wages, unreported tips, household employee pay, Medicaid waiver payments, taxable fringe benefits, and a handful of less common categories. Getting this line right sets up the rest of your return, because it feeds your gross income, your eligibility for credits like the Earned Income Credit, and the tax you owe.¹

Line 1a: W-2 Wages

For most filers, Line 1a carries almost everything. You enter the total from Box 1 of every Form W-2 you received during the tax year.¹ If you’re filing jointly, combine your W-2 amounts with your spouse’s.² That single figure includes your base pay, bonuses, commissions, and several other items your employer folded in before printing the form.

What Your Employer Already Included in Box 1

Box 1 often runs higher than the salary you remember, because employers are required to add certain compensation into the total before issuing the W-2. Knowing what’s in there keeps you from reporting the same money twice.

Restricted stock units and stock grants. When RSUs vest, the fair market value on the vesting date counts as compensation and gets added to Box 1.
Severance pay and cash-outs of unused vacation or sick leave. Both are taxable wages subject to income tax withholding, Social Security, and Medicare.³
Group-term life insurance coverage over $50,000. If your employer provides more than $50,000 in coverage, the cost of the excess is added to Box 1 and also shown in Box 12 with code “C.” The first $50,000 stays tax-free.⁴⁵
Third-party sick pay. Sick pay from an insurer while you were out due to illness or injury is generally taxable and flows into Box 1 to the extent it’s included in gross income.

If your W-2 total looks off, check Box 12. The codes there explain what your employer added.

Line 1b: Household Employee Wages

If you worked as a nanny, housekeeper, or home health aide and the family paid you less than $3,000 in cash wages during 2026, they aren’t required to issue you a W-2.⁶ That doesn’t make the income tax-free. You report it yourself on Line 1b. If the family paid $3,000 or more, they should issue a W-2, and that amount belongs on Line 1a instead.

Line 1b is one of the most commonly missed entries on the return. Babysitters, cleaners, and elder-care workers often assume small amounts don’t need to be reported. They do. The IRS can cross-reference payments through the household employer’s Schedule H filing.

Line 1c: Unreported Tips

Tips your employer already knows about, such as credit card tips or tips you logged through the employer’s tracking system, are inside your W-2 Box 1 and belong on Line 1a. Line 1c is only for tip income you did not report to your employer: cash tips, the value of noncash tips like event tickets, and any allocated tips shown in Box 8 of your W-2.⁷

If you have unreported tips, you also file Form 4137 to calculate the Social Security and Medicare tax owed on those amounts. A daily tip log makes this straightforward at filing time and helps if the IRS questions the numbers.

Line 1d: Medicaid Waiver Payments

Under IRS Notice 2014-7, certain Medicaid waiver payments to people who care for a family member in their own home can be excluded from gross income. If you received those payments and they weren’t reported in Box 1 of a W-2, enter them on Line 1d.⁸ You then back the nontaxable portion out on Schedule 1, Line 8s, so the excludable amount isn’t taxed.

Why report money that isn’t taxable? Because including it on the return can raise your earned income for purposes of the Earned Income Credit and similar credits. Entering it here and subtracting it on Schedule 1 keeps the math transparent and can boost your refund.

Lines 1e, 1f, and 1g: Benefits and Misclassified Wages

These three sub-lines cover specific situations tied to other IRS forms and stay blank for most filers.

Line 1e is for taxable dependent care benefits. If your employer offered a dependent care FSA or similar benefit, the amount appears in Box 10 of your W-2. Complete Form 2441 first, and any taxable excess from Form 2441, Line 26 goes on Line 1e.⁹
Line 1f is for taxable employer-provided adoption benefits. Employer adoption assistance shows up in Box 12 with code “T.” File Form 8839 to figure the excludable portion; any taxable remainder from Form 8839, Line 31 goes here.¹⁰
Line 1g is for wages from Form 8919. Use this when an employer treated you as an independent contractor but you should have been classified as an employee. Form 8919 calculates the Social Security and Medicare tax owed, and the total from its Line 6 goes on Line 1g. Filing it also gets your Social Security earnings record properly credited.¹¹

Line 1h: Other Earned Income

Line 1h is the catch-all. The Form 1040 instructions list several categories:²

Strike or lockout benefits from a union, unless they qualify as bona fide gifts.
Excess retirement plan deferrals. If you contributed more than the annual limit to your 401(k) or similar plan, the excess goes here. For 2025 returns, the general deferral limit is $23,500, with higher limits for SIMPLE plans and 403(b) plans with 15-year service.
Disability pensions received before you reach your employer’s minimum retirement age. These are shown on Form 1099-R and treated as earned income on Line 1h.
Corrective distributions of excess contributions or deferrals returned to you from a retirement plan, along with any earnings.

Line 1h has three separate entry spaces on the form, in case you have more than one type of income to report.¹²

Line 1i and Line 1z: Combat Pay and Your Total

Line 1i is optional and applies only to military members with nontaxable combat pay. You can elect to include that pay in your earned income calculation, which sometimes produces a larger Earned Income Credit even though the pay itself isn’t taxed.¹³ Skip it if it doesn’t help your credit.

Line 1z is the sum of Lines 1a through 1h. It’s your total earned income before you move on to interest, dividends, capital gains, and other categories on Lines 2 through 7.¹ Line 1i doesn’t add into Line 1z, because combat pay isn’t taxable; it’s there only to support credit calculations.

Where Taxable Scholarships Go

Taxable scholarship money is a common source of confusion, and it usually does not belong on Line 1. If your school or employer included a taxable scholarship or fellowship amount in Box 1 of a W-2, it’s already part of your Line 1a total. If you received a taxable scholarship or grant that wasn’t reported on a W-2, it goes on Schedule 1, Line 8r.¹⁴

Scholarships used for tuition, fees, and required books and supplies are generally tax-free. The taxable portion is whatever you spent on room, board, travel, or other non-qualified expenses.¹⁵ Compare your total scholarship amount against the qualified tuition and required expenses on your school’s account statements to find the split.

If Your W-2 Is Late, Missing, or Wrong

Employers must furnish W-2s by January 31 each year (with the deadline shifting to the next business day when that falls on a weekend, meaning February 2 for the 2025 tax year filed in 2026). If yours hasn’t arrived by mid-February, contact your employer.

When the W-2 never shows up or has errors your employer won’t fix, you can file using Form 4852 as a substitute. It lets you estimate wages, tips, and withholding from your own records, such as final pay stubs or bank deposit history.¹⁶ The IRS advises trying to get a corrected W-2 from your employer before resorting to Form 4852.¹⁷ Estimates can slow down processing, but that’s better than missing the deadline.

Before entering anything on Line 1a, cross-check Box 1 against your final pay stub of the year. Mismatches happen more often than you’d expect, especially with mid-year job changes, retroactive pay adjustments, or late bonus payments.

Penalties for Underreporting Line 1 Income

Leaving income off Line 1 doesn’t just produce a balance-due notice. If the understatement is large enough, the IRS can impose an accuracy-related penalty equal to 20% of the underpayment.¹⁸ That penalty stacks on the tax owed plus interest. It generally applies for negligence or for a “substantial understatement,” meaning your reported tax was off by the greater of 10% or $5,000.¹⁹

The most common way people get caught is W-2 matching. The IRS receives a copy of every W-2 your employer files, and mismatches trigger a notice. Unreported tips and household wages are harder to detect in real time, but they surface during audits and carry the same penalties. Reporting everything the first time is cheaper than amending later.

1
Internal Revenue Service. Form 1040 – 2025 U.S. Individual Income Tax Return
2
Internal Revenue Service. Instructions for Form 1040
3
Internal Revenue Service. Publication 525 – Taxable and Nontaxable Income
4
Internal Revenue Service. 2026 Publication 15-B
5
Internal Revenue Service. Group-Term Life Insurance
6
Internal Revenue Service. Publication 926 – Household Employer’s Tax Guide
7
Internal Revenue Service. Form 4137 – Social Security and Medicare Tax on Unreported Tip Income
8
Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
9
Internal Revenue Service. Instructions for Form 2441
10
Internal Revenue Service. Form 8839 – Qualified Adoption Expenses
11
Internal Revenue Service. Uncollected Social Security and Medicare Tax on Wages
12
Internal Revenue Service. Line-by-Line Instructions Free File Fillable Forms
13
Internal Revenue Service. Updates to Publication 3, Regarding the Nontaxable Combat Pay Election
14
Internal Revenue Service. Publication 970 – Tax Benefits for Education
15
Internal Revenue Service. Topic No. 421, Scholarships, Fellowship Grants, and Other Grants
16
Internal Revenue Service. About Form 4852, Substitute for Form W-2
17
Internal Revenue Service. Form 4852 – Substitute for Form W-2
18
Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
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Internal Revenue Service. Accuracy-Related Penalty