Taxable wages are salaries paid to an employee that by law, must have taxes withheld. Alternatively, there are non-taxable wages that is not subject to tax withholding.
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.
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Box 1: Wages, Tips and Other Compensation |
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Gross Earnings (Includes taxable fringe benefits and tips) |
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Minus |
Federal Tax Exempt Wages |
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Minus |
Deferred Compensation |
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Minus |
Meals |
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Minus |
Cafeteria 125 Benefits (May vary based on the benefit) |
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Plus |
Group-Term Life Insurance (cost of coverage over $50,000) |
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Plus |
Third-Party Sick pay |
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Plus |
Other Compensation |
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Box 3: Social Security Wages |
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Gross Earnings (Includes taxable fringe benefits and tips) |
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Minus |
Social Security Exempt Wages |
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Minus |
Meals |
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Minus |
Tips (Social Security Tips must print separately in Box 7) |
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Minus |
Cafeteria 125 Benefits (May vary based on the benefit) |
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Plus |
Group-Term Life Insurance (cost of coverage over $50,000) |
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Plus |
Third-Party Sick pay |
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Box 5: Medicare Wages and Tips |
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Minus |
Medicare Exempt Wages |
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Minus |
Meals |
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Minus |
Cafeteria 125 Benefits (May vary based on the benefit) |
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Plus |
Group-Term Life Insurance (cost of coverage over $50,000) |
|
Plus |
Third-Party Sick pay |
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Box 16: State Wages, Tips, Etc. |
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Gross Earnings (Includes taxable fringe benefits and tips) |
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Minus |
State Exempt Wages |
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Minus |
Deferred Compensation (May vary by state) |
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Minus |
Meals (May vary by state) |
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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) |
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Plus |
Other Compensation (May vary by state) |
* See the Terms & Conditions
