Personal Track - W-2 Box Explainer

Reading Your W-2: Why Boxes 1, 3, and 5 Can All Be Different

Your W-2 can show three different wage amounts in Boxes 1, 3, and 5 - even though you only have one salary. This is not an error. Each box is governed by different tax rules. Here is the full walkthrough with a real $100k example.

The Key Insight

Traditional 401(k) contributions reduce federal income tax (Box 1) but not Social Security or Medicare wages (Boxes 3 and 5). HSA contributions via a Section 125 cafeteria plan reduce all three boxes. This means Box 3 and Box 5 are usually higher than Box 1 by the amount of your 401(k) contribution.

Worked Example: $100k Salary with Common Deductions

Single filer, $100,000 salary, traditional 401(k) $8,000, HSA via Section 125 $3,000, health premium $2,400, FSA $500.

Item	Box 1 (Federal Wages)	Box 3 (SS Wages)	Box 5 (Medicare Wages)
Gross Salary	$100,000	$100,000	$100,000
Traditional 401(k) -$8,000	-$8,000	$0 (no reduction)	$0 (no reduction)
HSA via Sec 125 -$3,000	-$3,000	-$3,000	-$3,000
Health Premium -$2,400	-$2,400	-$2,400	-$2,400
FSA -$500	-$500	-$500	-$500
W-2 Box Amount	$86,100	$94,100	$94,100

Box 2
Federal Tax Withheld
~$10,700
Based on W-4 elections and Box 1 wages of $86,100
Box 4
SS Tax Withheld
$5,834
$94,100 x 6.2% (under $184,500 wage base)
Box 6
Medicare Tax Withheld
$1,364
$94,100 x 1.45% (no cap)

Every Key Box Explained

Box 1 - Wages, Tips, Other Compensation

Your federal taxable wages. This is gross salary minus pre-tax deductions that reduce federal income tax: traditional 401(k), HSA via Section 125, health insurance premiums, FSA, commuter benefits. This is the number used to calculate your federal income tax withholding.

Box 2 - Federal Income Tax Withheld

The amount your employer withheld for federal income tax during the year, based on your W-4 elections. This is not your actual federal tax liability - that is determined on your 1040. If too much was withheld, you get a refund. If too little, you owe.

Box 3 - Social Security Wages

SS wages are typically higher than Box 1 because traditional 401(k) contributions are not excluded from SS wages. Box 3 is reduced by HSA, health premium, and FSA (same as Box 1) but not by 401(k). Capped at the SS wage base ($184,500 in 2026) - if you earn more, Box 3 still shows $184,500 maximum.

Box 4 - Social Security Tax Withheld

6.2% of Box 3, up to a maximum of $11,439 ($184,500 x 6.2%). If you changed jobs and two employers both withheld up to the cap, you may have overpaid - claim the excess as a credit on Form 1040 Schedule 3.

Box 5 - Medicare Wages and Tips

Medicare wages are typically identical to Box 3 for workers under the SS wage base. For workers earning above $184,500, Box 5 continues to increase while Box 3 is capped. Box 5 uses the same exclusions as Box 3 (HSA, health premium, FSA reduce it; 401(k) does not).

Box 6 - Medicare Tax Withheld

1.45% of Box 5. If Box 5 exceeds $200,000 (single, regardless of filing status at this withholding stage), your employer must also withhold the 0.9% Additional Medicare Tax. Your actual Additional Medicare liability is reconciled on your 1040 using your actual filing status and combined income.

Box 12 - Codes

Code D: Traditional 401(k) elective deferrals (limit $23,500 in 2026; $31,000 age 50+). Code AA: Roth 401(k) deferrals. Code W: HSA employer and employee contributions combined. Code DD: Total cost of employer-sponsored health coverage (informational, not taxable). Code EE: Designated Roth 403(b) contributions.

Where Is “Net Income” on the W-2?

A W-2 does not show net income explicitly. The W-2 is a wage and withholding report, not a net pay statement. To calculate your net income for the year from W-2 data:

Net = Box 1 - Box 2 (federal tax) - Box 4 (SS tax) - Box 6 (Medicare tax) - Box 17 (state tax) - Box 19 (local tax)

The simpler approach: look at your final paystub of the year. The YTD (Year-to-Date) Net column shows your total take-home for the year. That is your personal net income as a W-2 employee.

Deduction Treatment Summary

Deduction	Box 1	Box 3	Box 5	Box 12 Code
Traditional 401(k)	Reduced	No change	No change	D
Roth 401(k)	No change	No change	No change	AA
HSA (Sec 125 plan)	Reduced	Reduced	Reduced	W
Health Premium (Sec 125)	Reduced	Reduced	Reduced	DD (info only)
FSA (Sec 125)	Reduced	Reduced	Reduced	None
Commuter Benefits	Reduced	Reduced	Reduced	None
After-Tax 401(k)	No change	No change	No change	None
Union Dues (post-tax)	No change	No change	No change	None

W-2 FAQs

Why is W-2 Box 1 less than my gross salary?

Box 1 shows taxable wages after pre-tax deductions that reduce federal income tax: traditional 401(k), HSA via Section 125, health insurance premiums, FSA, and commuter benefits. If you earned $100,000 and contributed $8,000 to a traditional 401(k), $3,000 to an HSA, and paid $2,400 in health premiums, Box 1 would show $86,600. That $13,400 reduction is your total pre-tax exclusions from federal taxable wages.

Why is W-2 Box 3 higher than Box 1?

Because traditional 401(k) contributions do not reduce Social Security wages. Box 3 (SS wages) includes your 401(k) contributions, so it is typically higher than Box 1. HSA and health premiums via Section 125, however, do reduce Box 3. In the example above, Box 3 would be $100,000 - $3,000 (HSA) - $2,400 (health premium) = $94,600 - higher than Box 1 ($86,600) by the $8,000 401(k) amount.

What is the maximum W-2 Box 4 can show?

Box 4 is 6.2% of Box 3, capped at the Social Security wage base. For 2026, the wage base is $184,500, so the maximum Box 4 value is $184,500 x 6.2% = $11,439. If you changed jobs mid-year and each employer withheld up to the cap, you may have overpaid SS tax - you can claim the excess as a credit on your 1040.

What does W-2 Box 12 Code D mean?

Box 12 Code D reports your traditional 401(k) elective deferrals for the year - the pre-tax amount you contributed. This is informational: it tells you how much was deferred so you and the IRS can verify the contribution did not exceed the annual 401(k) deferral limit ($23,500 in 2026, $31,000 if age 50+). Code W reports employer and employee HSA contributions; Code DD reports the total cost of employer-sponsored health coverage (informational only, not taxable).