Compliance Connection

W-2 Taxable Wages

Responding to employee W-2 inquiries is much easier once you know the pay elements used to determine the taxable wages on the W-2. The explanation which follows reflects only the most common pay elements that determine taxable wages on the W-2. Pay Elements Used To Determine Taxable Wages.

Box 1: Wages, Tips and Other Compensation
Gross Earnings (Includes taxable fringe benefits and tips)
Minus Federal Tax Exempt Wages
Minus Deferred Compensation
Minus Meals
Minus Cafeteria 125 Benefits (May vary based on the benefit)
Plus Group-Term Life Insurance (cost of coverage over $50,000)
Plus Third-Party Sick pay
Plus Other Compensation

Box 3: Social Security Wages
Gross Earnings (Includes taxable fringe benefits and tips)
Minus Social Security Exempt Wages
Minus Meals
Minus Tips (Social Security Tips must print separately in Box 7)
Minus Cafeteria 125 Benefits (May vary based on the benefit)
Plus Group-Term Life Insurance (cost of coverage over $50,000)
Plus Third-Party Sick pay

Box 5: Medicare Wages and Tips
Minus Medicare Exempt Wages
Minus Meals
Minus Cafeteria 125 Benefits (May vary based on the benefit)
Plus Group-Term Life Insurance (cost of coverage over $50,000)
Plus Third-Party Sick pay

Box 16: State Wages, Tips, Etc.
Gross Earnings (Includes taxable fringe benefits and tips)
Minus State Exempt Wages
Minus Deferred Compensation (May vary by state)
Minus Meals (May vary by state)
Minus Cafeteria 125 Benefits (May vary based on the benefit and the state)
Plus Group-Term Life Insurance (cost of coverage over $50,000)(May vary by state)
Plus Third-Party Sick pay (May vary by state)
Plus Other Compensation (May vary by state)
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