How to Identify Taxable Wages on the Form W-2

Understanding Taxable Wages on the W-2 is easier once you know the pay elements used to determine these numbers. This article will highlight the elements that go into key W-2 boxes.

OVERVIEW

Taxable wages are salaries paid to an employee that, by law, must have taxes withheld. Alternatively, there are non-taxable wages that are not subject to tax withholding. This article will help you identify items that impact taxable wages on Form W-2.  

• Items marked plus will increase taxable wages.

• Items marked minus will decrease taxable wages.

 

ELEMENTS AFFECTING W-2 TAXABLE WAGES 

 

Box 1: Wages, Tips, and Other Compensation

Box 1 Amount =
GROSS EARNINGS (includes taxable fringe benefits and tips), then
plus	Group Term Life
plus	Third Party Sick Pay
plus	Other taxable compensation
minus	Pre-tax deductions / Section 125 deductions (may vary depending on the benefit)
minus	Federal Tax Exempt Wages
minus	Deferred Compensation

 

Box 3: Social Security Wages 

Box 3 Amount =
GROSS EARNINGS (includes taxable fringe benefits and tips), then
plus	Group Term Life
plus	Third Party Sick Pay
minus	Pre-tax deductions / Section 125 deductions (may vary depending on the benefit)
minus	Social Security exempt wages
minus	Tips

 

Box 5: Medicare Wages and Tips 

Box 5 Amount =
GROSS EARNINGS (includes taxable fringe benefits and tips), then
plus	Group Term Life
plus	Third Party Sick Pay
minus	Pre-tax deductions / Section 125 deductions (may vary depending on the benefit)
minus	Medicare exempt wages
minus	Meals

 

Box 16: State Wages, Tips, Etc. 

Box 16 Amount =
GROSS EARNINGS (includes taxable fringe benefits and tips), then
plus	Group Term Life
plus	Third Party Sick Pay
plus	Other compensation (may vary by state)
minus	Pre-tax deductions / Section 125 deductions (may vary depending on the benefit)
minus	Social Security exempt wages
minus	Deferred compensation
minus	Meals