Your W-2, box by box

If you have a regular job, your employer is required to mail you a Form W-2 by January 31. It looks like a busy little grid with about twenty boxes, half of them blank, and three different sets of wages that don’t match each other. This lesson decodes the whole thing.

The big idea: a W-2 reports what your employer paid you and what they already withheld for taxes. You don’t pay tax based on the W-2, the W-2 is the input you (or your tax software) use to calculate whether you owe more or get a refund.

Why Box 1, Box 3, and Box 5 don’t match

This is the question that confuses almost everyone. Three boxes report wages, and they’re usually three different numbers. Here’s why:

• Box 1 (Wages, tips, other compensation) is your taxable income for federal income tax. Pre-tax 401(k) contributions are subtracted out. Pre-tax health insurance premiums are subtracted out. HSA contributions through payroll are subtracted out. So Box 1 is usually the smallest of the three wage numbers.
• Box 3 (Social Security wages) is the income subject to Social Security tax (6.2%). Pre-tax 401(k) contributions are not subtracted out. Social Security still taxes them. But pre-tax health premiums and HSA contributions aresubtracted out. There’s also an annual cap: $184,500 for 2026 (up from $176,100 in 2025)^[1]. Earnings above the cap aren’t taxed for Social Security and don’t appear in Box 3.
• Box 5 (Medicare wages and tips) is the income subject to Medicare tax (1.45%, plus 0.9% above certain thresholds). There is no annual cap. Pre-tax 401(k) is not subtracted out, but pre-tax health premiums and HSA contributions are. Box 5 is usually the largest of the three.

So the typical pattern is Box 5 ≥ Box 3 ≥ Box 1. If your salary is below the Social Security cap and you have no pre-tax deductions, all three match. If you contribute to a 401(k), Box 1 will be lower than the other two. If you earn above the cap, Box 3 will be lower than Box 5.

The wage and withholding boxes (1-10)

Quick tour of the boxes that always get filled in:

• Box 1. Wages. Federal taxable wages. Use this on your 1040.
• Box 2. Federal income tax withheld. What your employer already sent the IRS on your behalf throughout the year. You compare this to what you actually owe; if Box 2 is bigger, you get a refund.
• Box 3. Social Security wages. Capped (see above).
• Box 4. Social Security tax withheld. Should equal 6.2% × Box 3. If it doesn’t, ask payroll.
• Box 5. Medicare wages. Uncapped.
• Box 6. Medicare tax withheld. 1.45% × Box 5, plus an extra 0.9% on wages above $200,000 if you’re a single filer (or $250,000 married filing jointly)^[2].
• Boxes 7 and 8. Tips. Mostly relevant for service workers. Box 7 is reported tips, Box 8 is allocated tips (rare).
• Box 10. Dependent care benefits. Money that went through a dependent-care FSA. Above $5,000/year is taxable and appears in Box 1 too.

Box 12, the alphabet soup, decoded

Box 12 is a stack of two-letter codes, each followed by a dollar amount. Most W-2s have one to four entries here. The codes are how the IRS asks employers to flag specific kinds of compensation compactly. The most common ones for typical employees:

• Code D, 401(k) contributions. Your pre-tax retirement contributions. The most common Box 12 code by a mile. This is also why Box 1 is lower than Box 5.
• Code DD. Cost of employer-sponsored health coverage. The total premium (yours + employer’s share) for your health insurance. Reported for transparency under the ACA. Not taxable. Many people see a big number here and panic, it’s informational, not income.
• Code AA. Roth 401(k) contributions. Like Code D but for the Roth side, which is post-tax. Doesn’t reduce Box 1.
• Code W. HSA contributions through payroll. Both yours and your employer’s. Pre-tax for federal income tax, Social Security, and Medicare.
• Code C. Group-term life insurance over $50,000. If your employer-paid life insurance exceeds $50k, the value of the coverage above that threshold is taxable. Already added to Box 1.
• Code G, 457(b) contributions. A retirement plan mostly for state/local government and certain nonprofit employees.
• Code BB. Roth 403(b) contributions, and Code EE. Roth 457(b) contributions. Same idea as AA, for different employer plan types.

There are about 30 possible codes total. The IRS’s “General Instructions for Forms W-2 and W-3” lists all of them. If you see a code you don’t recognize, look it up, it tells you something specific about your compensation.

Box 13, the three little checkboxes

Three checkboxes that look small but matter for your tax return:

• Statutory employee. Rare. Used for certain drivers, life insurance salespeople, and home workers. Changes how your income flows on the return.
• Retirement plan. Checked if you were “active” in a workplace retirement plan during the year. This affects whether your Traditional IRA contributions are tax-deductible (and at what income level the deduction phases out).
• Third-party sick pay. Means some of your wages came from a third-party insurance company rather than your employer.

Box 14, the “other” box

Box 14 is a free-form box where employers report anything they want you to know that doesn’t fit cleanly elsewhere. Common uses: state disability insurance withholding (CA SDI, NY SDI), union dues paid, after-tax health insurance premiums, employer parking benefits, railroad retirement contributions, and tuition reimbursement.

There are no standard codes here, just plain-text labels the employer chose. Most tax software lets you type what’s in Box 14 directly. A few items in Box 14 (like CA SDI) can be deductible on certain state returns or as itemized deductions, your tax software will ask.

Boxes 15-20, state and local

• Box 15. State and employer’s state ID. Which state your employer is registered in.
• Box 16. State wages. Often equals Box 1, but can differ for states with quirky rules (Pennsylvania, New Jersey, and a few others tax certain pre-tax items the federal government doesn’t).
• Box 17. State income tax withheld. Used on your state tax return.
• Boxes 18-20. Local wages, local tax withheld, locality name. If you live or work in a city or county with a local income tax (NYC, Philadelphia, several cities in Ohio, etc.), this is where it appears.

If you worked in two states or moved during the year, you may receive a single W-2 with two state sections, or two separate W-2s. Either is normal. The total Box 1 should add up across them.

What to check before filing

1. Your name and Social Security number. A typo here can delay your refund or, worse, route a payment to the wrong person. If anything is wrong, ask your employer for a corrected W-2 (Form W-2c) before filing.
2. Box 2 vs. Box 1. Divide Box 2 by Box 1 to see your effective federal withholding rate. If it’s wildly different from your tax bracket, you’ll either owe a lot at filing or have given the government a big interest-free loan all year.
3. Box 4 = 6.2% × Box 3. Quick arithmetic sanity check. Off by a few cents from rounding is fine. Off by hundreds means a payroll error.
4. Box 12 codes match what you remember signing up for. If you maxed your 401(k) at 6% but Code D shows 2%, your enrollment may not have stuck. Worth a conversation with HR.
5. State wages match your situation. If you moved or worked remotely from another state, the W-2 state allocation can get weird. Catch it before you file two state returns.

What to do if a number looks wrong

Mistakes on W-2s are real. If you find one:

• Email payroll, in writing. Be specific (“Box 4 shows $4,720 but Box 3 × 6.2% should be $4,890”).
• Ask for a corrected W-2, the official name is Form W-2c. Employers issue them when something on the original is wrong.
• If you’ve already filed, you may need to amend your return using Form 1040-X after you receive the W-2c.
• If your employer refuses to fix an obvious error, the IRS’s procedure is described in Topic 154 on irs.gov: you call the IRS, they contact the employer, and as a last resort you can file with Form 4852 (substitute W-2).

Action steps before tax season

1. Open your W-2 the day it arrives. Don’t put it in a pile. Take five minutes to scan the boxes.
2. Compare it to your final pay stub of the year. The two should match for total wages, federal withholding, Social Security, and Medicare. They usually do; when they don’t, it’s almost always a payroll mistake.
3. Save it. Keep your W-2s for at least 3 years (the IRS audit window for most situations), 7 years if you’re cautious. A folder in cloud storage works fine.
4. If something looks off, ask now, not in April. Employers fix W-2 errors slowly; getting the corrected form before you sit down to file saves a real headache.

What this lesson is NOT

This is not tax-filing advice or a substitute for a tax professional. It explains what each box means, not how your specific return will come out, and it does not cover every box combination, multi-state situations, or the equity-compensation and benefit codes that make some W-2s more complicated. If your situation is unusual, a CPA earns their fee here.

Spot a mistake in this lesson? Email [email protected].