First, an explanation of the boxes:
Box 1 reports your total taxable wages or salary for federal income tax purposes. The number includes your wages, salary, tips you reported, bonuses and other taxable compensation. For example, taxable fringe benefits such as group term life insurance will be included here.
However, Box 1 does not include any pre-tax benefits, such as savings contributions to a 401(k) plan, 403(b) plan or health insurance. The amount from Box 1 is reported on Line 7 of your Form 1040
Box 3 reports the total amount of your wages subject to Social Security tax.
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.
It is quite common for Boxes 3 and 5 to be higher than Box 1. Here's an example:
- Your wages for the year were $30,000.
- You had $5,500 taken from your pay to go into your employer's 401k retirement plan.
Box 1 would show $24,500 since $5,500 is not being taxed. This will show up in Box 12 of your W-2.
Boxes 3 and 5 would show the full $30,000 since your total wages are subject to Social Security and Medicare Taxes.
Any combination is possible; however, boxes 3 and 5 are most often the same and box 1 can be lower than 3 and 5.
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