Box 1 (Wages, Tips and Other Compensation) represents the amount of compensation taxable for federal income tax purposes while box 3 (Social Security Wages) represents the portion taxable for social security purposes and box 5 (Medicare Wages) represents the portion taxable for Medicare tax purposes.

Why is Box 5 on W-2 lower than box 1?

First, an explanation of the boxes: Box 1 reports your total taxable wages or salary for federal income tax purposes. Box 5 reports the amount of wages subject to the Medicare Tax. There is no maximum wage base for Medicare, so the amount showing in Box 5 may be larger than the amount showing in Box 1.

What should go into each box on a W-2 form?

At the top of the form you’ll input your employee’s social security number, followed by these items: Then there are 20 boxes on a W-2 form. Here is what should go into each box. Your employee’s total annual income from both wages and tips. Make sure to include any taxes you withheld but not any IRA deductions.

Why are wages in box 1 lower on W-2?

The wages you report in Box 1 might be higher or lower than other wages on Form W-2. This is not a mistake. For example, an employee’s Box 1 wages can be lower than Box 3 wages. Some pre-tax benefits are exempt from federal income tax but not Social Security tax.

Do you pay Social Security taxes on W-2 box 1?

If an employee elected to contribute to a pre-tax retirement plan, their W-2 Box 1 wages are likely lower than their Box 3 wages. An employee’s elected retirement plan contributions are not subject to federal income taxes. However, these contributions are subject to Social Security and Medicare taxes.

What’s the check mark on the Form W-2?

You can also see that there are W-2 Box 12 codes and values. And, there is a check mark in Box 13. This example Form W-2 shows that the employee contributed $1,000 to a pre-tax retirement plan, reducing their taxable wages by $1,000. However, the retirement contribution is still subject to Social Security and Medicare taxes.