Why Box 1 Is Not Your Gross Salary
The single most common W-2 misconception: Box 1 equals your annual salary. It does not. Box 1 — Wages, Tips, Other Compensation — shows your federal taxable wages, which is your gross salary minus pre-tax deductions.
What reduces your Box 1 from gross: traditional 401k contributions (Code D in Box 12), health insurance premiums paid pre-tax through your employer plan, Health Savings Account contributions (Code W in Box 12), dependent care FSA contributions (shown in Box 10), and transit or parking benefits (Code Q in Box 12).
| Item | Amount |
|---|---|
| Gross salary | $75,000 |
| Less 401k contribution | −$10,000 |
| Less health insurance premium | −$3,200 |
| Less HSA contribution | −$2,000 |
| Box 1 — federal taxable wages | $59,800 |
This is why your Box 1 is often meaningfully lower than your annual salary — and why your federal tax bill is lower than a simple rate applied to gross salary would suggest.
Boxes 1 Through 6 — The Core Tax Data
Box 1 — Wages, Tips, Other Compensation: Your federal taxable wages. This is what you report as income on Form 1040 Line 1a. Not gross salary.
Box 2 — Federal Income Tax Withheld: Total federal income tax withheld from all paychecks during the year. Compare this to your actual federal tax liability on your return. If Box 2 is more than you owe, you get a refund. If Box 2 is less than you owe, you owe the difference — and may owe an underpayment penalty if the gap is large enough.
Box 3 — Social Security Wages: Wages subject to Social Security tax. For most workers this equals gross salary. Some pre-tax deductions that reduce Box 1 do not reduce Box 3 — meaning Box 3 can be higher than Box 1. The 2025 Social Security wage base was $176,100 per IRS instructions. Wages above $176,100 are not subject to Social Security tax.
Box 4 — Social Security Tax Withheld: Should equal Box 3 multiplied by 6.2%. If you had two employers during the year, check this carefully — you may have overpaid Social Security tax and can claim a credit on your return.
Box 5 — Medicare Wages and Tips: Almost always equals gross salary. There is no wage cap on Medicare wages — unlike Social Security, every dollar of earnings is subject to Medicare tax.
Box 6 — Medicare Tax Withheld: Should equal Box 5 multiplied by 1.45% for most workers. If you earned over $200,000, an additional 0.9% applies per the Affordable Care Act. Your employer withholds this additional amount once your wages exceed $200,000 in the year.
Box 12 — The Coded Box Most People Skip
Box 12 contains important information under letter codes. Here are the codes most workers encounter:
| Code | What It Means |
|---|---|
| D | Traditional 401k contributions. Excluded from Box 1. 2025 limit: $23,500. |
| W | Employer + employee HSA contributions. Both types appear here. |
| DD | Cost of employer-sponsored health insurance. Informational only — not taxable, not deductible. |
| AA | Roth 401k contributions. These were NOT excluded from Box 1 — you already paid tax. Withdrawals in retirement are tax-free. |
| EE | Roth 403(b) contributions. Same tax treatment as Code AA. |
| Q | Nontaxable military pay. |
New in 2026 per IRS instructions: Box 14 has been split into Box 14a and Box 14b. Employers now separately report overtime compensation in Box 14a to align with the 2025 OBBBA overtime deduction provisions.
Box 13 and Box 14 — Checkboxes and Everything Else
Box 13 — Three checkboxes: Statutory Employee (you pay self-employment tax but employer does not withhold it), Retirement Plan (you participated in an employer retirement plan — this affects IRA deduction limits on your return), and Third-party Sick Pay (disability payments from a third party).
Box 14a — Other: Employers report miscellaneous information here. Common items include union dues, educational assistance, state disability insurance premiums, and health insurance premiums. New in 2026: overtime pay deduction information must be reported separately here per updated IRS instructions.
Boxes 15 through 20 — State and local tax information: Box 15 is your state employer ID, Box 16 is state wages, Box 17 is state income tax withheld, Box 18 is local wages, Box 19 is local income tax withheld, and Box 20 is the name of the locality. If you worked in a state with no income tax, these boxes may be blank or show zero.
Calculate how much federal and state tax you should have paid on your salary:
Tax Bracket Calculator →Disclaimer: This article explains W-2 form boxes for educational purposes. For your specific tax situation consult a qualified tax professional. Tax situations vary by individual.