Quick Answer
A W-2 is your annual wage and tax statement that summarizes all the information from your pay stubs for the entire tax year. Box 1 (wages) often differs from your gross pay because it excludes pre-tax deductions like 401(k) contributions, which reduce your taxable income but appear on every pay stub.
Best Answer
Sarah Chen, CPA
Best for typical employees who want to understand their W-2 and how it connects to their regular paychecks
What is a W-2 form?
Your W-2 (Wage and Tax Statement) is essentially a year-end summary of all your pay stubs rolled into one document. Your employer must provide it by January 31st, and you use it to file your tax return.
Think of it this way: if pay stubs are your monthly bank statements, your W-2 is your annual account summary.
Key W-2 boxes and what they mean
Box 1 — Wages, tips, other compensation: Your taxable income for federal tax purposes
Box 2 — Federal income tax withheld: Total federal taxes taken from your paychecks
Box 3 — Social Security wages: Income subject to Social Security tax (capped at $176,100 for 2026)
Box 4 — Social Security tax withheld: Total SS taxes (6.2% of Box 3)
Box 5 — Medicare wages: Income subject to Medicare tax (usually same as Box 1)
Box 6 — Medicare tax withheld: Total Medicare taxes (1.45% of Box 5, plus 0.9% additional if high earner)
Example: $75,000 salary with 401(k) contributions
Let's say you earn $75,000 annually and contribute 6% to your 401(k):
Your annual gross pay: $75,000
Your 401(k) contributions: $4,500 (6% × $75,000)
Box 1 (taxable wages): $70,500 ($75,000 - $4,500)
Box 2 (federal tax withheld): ~$8,460 (varies by W-4)
Box 3 (Social Security wages): $70,500
Box 4 (Social Security tax): $4,371 (6.2% × $70,500)
Box 5 (Medicare wages): $75,000 (Medicare tax applies to gross pay)
Box 6 (Medicare tax): $1,088 (1.45% × $75,000)
Why Box 1 might be lower than expected
The most common confusion: "My W-2 says I only made $70,500, but I know I earned $75,000!" Here's why Box 1 is often lower than your actual salary:
How to verify your W-2 against pay stubs
1. Add up federal tax withheld from all pay stubs — should equal Box 2
2. Calculate total pre-tax deductions — subtract from gross pay to get Box 1
3. Check Social Security and Medicare taxes — should match Boxes 4 and 6
4. Look for Box 12 codes — these show your pre-tax deductions by category
What to do if numbers don't match
Minor differences (under $10) are usually rounding. Larger discrepancies need investigation:
Key factors that affect your W-2
What you should do
1. Save your final pay stub to compare against your W-2
2. Review Box 12 codes to understand your pre-tax deductions
3. Check for errors before filing your tax return
4. Keep your W-2 for at least 3 years after filing
Use our paycheck calculator to estimate what your W-2 should look like based on your current pay stub deductions.
Key takeaway: Your W-2 Box 1 wages are typically lower than your gross salary because pre-tax deductions like 401(k) contributions reduce your taxable income, even though you see the full gross amount on each pay stub.
Key Takeaway: Your W-2 summarizes all pay stubs for the year, with Box 1 wages often lower than gross salary due to pre-tax deductions like 401(k) contributions.
Common W-2 boxes and their relationship to pay stub items
| W-2 Box | Description | Pay Stub Equivalent | Key Difference |
|---|---|---|---|
| Box 1 | Taxable wages | YTD gross pay | Reduced by pre-tax deductions |
| Box 2 | Federal tax withheld | YTD federal tax | Should match exactly |
| Box 3 | Social Security wages | YTD SS wages | Capped at $176,100 |
| Box 4 | Social Security tax | YTD SS tax | 6.2% of Box 3 |
| Box 5 | Medicare wages | YTD Medicare wages | Usually equals gross pay |
| Box 6 | Medicare tax | YTD Medicare tax | 1.45% + 0.9% if high earner |
More Perspectives
Marcus Rivera, CFP
Best for high-income earners who may have complex W-2 situations with stock compensation or multiple income sources
W-2 complications for high earners
As a high earner, your W-2 likely includes complexities beyond basic wages and standard deductions. Understanding these nuances is crucial for accurate tax planning and avoiding surprises.
Additional Medicare Tax on your W-2
If you earned over $200,000, you'll see Additional Medicare Tax withheld (0.9% on wages above the threshold). This appears in Box 6 along with regular Medicare tax, and there's no employer matching.
Example: $250,000 salary
Stock compensation complications
Restricted Stock Units (RSUs): When vested RSUs appear in Box 1, they're taxed as ordinary income. The stock's fair market value on vesting date becomes part of your W-2 wages, even though you might not have sold the shares.
Stock options: Only appears on W-2 when exercised (for non-qualified options) or when restrictions lapse (for incentive stock options subject to AMT).
Social Security wage base limits
For 2026, Social Security tax stops at $176,100 of wages. If you earn more:
Executive compensation considerations
Deferred compensation: Might not appear until actually paid, creating timing differences between when you earn it and when it hits your W-2.
Golden parachutes: Excess amounts may be subject to 20% excise tax, which could appear in Box 6.
Section 162(m) limits: For public company executives, compensation over $1 million may be non-deductible to the company but still appears normally on your W-2.
Key takeaway: High earners face W-2 complexities including Additional Medicare Tax, Social Security caps, and stock compensation that require careful review and tax planning.
Key Takeaway: High earners face W-2 complexities including Additional Medicare Tax withholding, Social Security caps at $176,100, and stock compensation timing issues.
Marcus Rivera, CFP
Best for older workers transitioning to retirement who need to understand W-2s in the context of retirement planning
W-2 considerations as you approach retirement
Your final working years often bring unique W-2 situations that require attention, especially if you're transitioning from full-time work to retirement or considering retirement timing.
Catch-up contributions and your W-2
If you're 50 or older, your higher 401(k) contribution limits significantly impact your W-2:
Ages 50-59: Can contribute up to $31,000 to 401(k) for 2026
Ages 60-63: Can contribute up to $34,750 (super catch-up provision)
Age 64+: Back to $31,000 limit
These larger contributions create bigger differences between your gross salary and Box 1 wages.
Example: $120,000 salary at age 55
Retirement year W-2 timing
If you retire mid-year, your W-2 only includes wages paid through your retirement date. However:
HSA advantages in pre-retirement
If you're 55+, you can contribute an extra $1,000 to your HSA ($5,300 total for 2026 self-only coverage). This reduces both Box 1 wages and provides tax-free medical expense coverage in retirement.
Phased retirement considerations
Many people reduce to part-time before full retirement. Your W-2 will show:
Planning tip: Use this lower-income year to consider Roth IRA conversions, as you'll likely be in a lower tax bracket.
What changes after your final W-2
Once you stop receiving W-2s, your tax situation shifts dramatically:
Key takeaway: Pre-retirement W-2s often show maximum catch-up contributions creating large differences from gross pay, while retirement timing affects which year various payments appear on your final W-2.
Key Takeaway: Pre-retirement W-2s reflect maximum catch-up contributions, while retirement timing decisions affect which year various payments appear on your final W-2.
Sources
- IRS Publication 15-T — Federal Income Tax Withholding Methods and W-2 reporting requirements
- IRS Instructions for Form W-2 — Detailed instructions for completing and understanding Form W-2
Related Questions
Reviewed by Sarah Chen, CPA on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.