W2 Box 1 vs Box 5: What is the Difference?

W-2 Box 1 is the amount of pay subject to income tax. Pre-tax contributions to a 401k or 403b will not show in Box 1 but will be in Box 3 and 5 amounts.

Know Your W-2 Form: Family Lawyers Know Income Determination is Critical for Spousal and Child Support

Knowing the differences in Boxes 1, 3, and 5, on a W-2 is important in determining income.  “Wages, tips, and other compensation,” “Social security wages,” and “Medicare wages and tips” do not appear to be all that different.  In some cases, the amounts in those boxes are the same.  However, depending on the level and source of income, the amount in these three boxes could be very different.  Box 1 includes income subject to federal income tax.  Box 3 includes income subject to employee Social Security tax.  Box 5 includes income subject to Medicare tax.  It is important to understand how these boxes are different to properly determine the income of an opposing spouse.

Where to begin?  Start with Box 1.  This box shows the total wages, tips, and other compensation paid to the employee during the year.  It does not include elective deferrals, such as 401(k) or 403(b), or contributions to a SIMPLE retirement account.  Box 1 does, however, include Roth contributions.  The amount in Box 1 is also going to be subject to Social Security and Medicare taxes, which means it will be included in Boxes 3 and 5.

Box 5 includes income subject to federal income tax (Box 1) as well as income that is not subject to federal income tax.  This is the amount subject to Medicare tax.  Income not subject to federal income tax includes employee contributions to a SIMPLE retirement account or other elective deferrals, which will be taxed later on.  Box 5 is the most thorough listing of income.

Box 3 reflects income subject to Social Security tax.  The income subject to Medicare tax in Box 5 will also be subject to Social Security tax.  The difference in Boxes 3 and 5 is that the Social Security Tax has a wage base limit, meaning only earnings up to a certain point are taxed.  While the same income subject to Medicare tax will be subject to Social Security tax, the amount in Box 3 could be lower than the amount in Box 5 depending on whether the employee’s income is above the wage base limit.

Using these boxes on a W-2 is critical in properly determining the income of a spouse.  Knowing not only the amount of spouse’s income, but the type of income is an important first step in determining income.  For more detail, see the IRS Form W-2 instructions on IRS.gov.  They change every year!

Tucker Osborne wrote this while clerking for our firm during his third year at the University of Memphis School of Law.  He now practices law in Birmingham, Alabama.

Guest Blog by Tucker Osborne