Why W-2 Box 1, Box 3, and Box 5 Show Different Numbers

One of the most common questions about the W-2 form: why are there three different wage amounts — and which one do you actually use on your tax return?

The short answer: Box 1 is your federal taxable wages, Box 3 is your Social Security wages, and Box 5 is your Medicare wages. They're often different because different types of compensation and pre-tax deductions are treated differently under federal income tax rules versus FICA (Social Security and Medicare) rules.

What Each Wage Box Represents

Box 1: Federal Wages, Tips, and Other Compensation

Box 1 is the number that flows directly to Line 1a of your Form 1040. It's your total taxable compensation for federal income tax purposes. This is generally your gross pay minus any pre-tax deductions that are excluded from federal income tax — including 401(k) contributions, health insurance premiums paid through a Section 125 cafeteria plan, and HSA contributions made via payroll.

Box 3: Social Security Wages

Box 3 is the amount subject to Social Security tax (6.2% employee, 6.2% employer). The maximum Box 3 amount for 2025 is $176,100 — the Social Security wage base. If you earned more than this, Box 3 will be capped at $176,100 even though Box 1 and Box 5 continue above that threshold.

Box 5: Medicare Wages and Tips

Box 5 is the amount subject to Medicare tax (1.45% employee, 1.45% employer, plus 0.9% Additional Medicare Tax on amounts above $200,000). Unlike Social Security, Medicare has no wage cap — Box 5 is never capped. It will equal or exceed Box 3 for high earners.

Why Box 1 Is Usually Lower Than Box 3 and Box 5

The most common reason Box 1 is lower than Box 3 and Box 5 is pre-tax deductions that are excluded from federal income tax but NOT from Social Security and Medicare taxes.

Common examples:

401(k) Contributions (Box 12 Code D)

When you contribute to a traditional 401(k), that money is excluded from federal income tax — reducing Box 1. But Social Security and Medicare taxes are applied to your gross pay before the 401(k) contribution — so Box 3 and Box 5 don't get reduced.

Example: Gross pay $60,000, 401(k) contribution $6,000 → Box 1 = $54,000, Box 3 = $60,000, Box 5 = $60,000

HSA Contributions via Payroll (Box 12 Code W)

Employee HSA contributions made through payroll under a Section 125 plan are excluded from federal income tax AND FICA taxes. In this case, all three boxes go down by the same amount.

Health Insurance Premiums (Section 125)

Employer-sponsored health insurance premiums paid through a cafeteria plan are excluded from federal income tax (reducing Box 1) AND from Social Security and Medicare taxes (reducing Box 3 and Box 5). When deducted under Section 125, all three boxes drop equally.

Dependent Care FSA Contributions

Contributions to a Dependent Care FSA (up to $5,000) through a cafeteria plan are excluded from all three boxes.

When Box 5 Is Higher Than Box 3

For employees earning more than the Social Security wage base ($176,100 in 2025), Box 5 will be higher than Box 3, because:

Box 3 is capped at $176,100
Box 5 has no cap

This is normal and expected for higher earners. It simply means you stopped paying the 6.2% Social Security tax once your wages crossed $176,100, but you continue paying 1.45% Medicare tax on everything above that.

When Box 1 Is Higher Than Box 3 or Box 5

This is less common but can happen in specific situations:

Non-Statutory Stock Options (Code V): When you exercise NQSOs, the income is included in Box 1 (taxable for federal income tax) but FICA taxes were already collected at grant or another time, so it may not be in Box 3.
Section 457(b) Deferrals: Amounts deferred into governmental 457(b) plans reduce Box 1 but not Box 3 or Box 5.
Employer Contributions to Group-Term Life Insurance Over $50,000 (Code C): Included in Box 1 as taxable income, but Social Security and Medicare taxes are tracked separately (Codes M and N) for former employees.

Which Box Do You Use to File Your Taxes?

For your federal income tax return (Form 1040): Use Box 1. This is the only W-2 amount that directly flows to your 1040. Your software will pull it automatically.

For verifying Social Security credits: Box 3 determines your Social Security earnings record. It's worth checking your Social Security statement at ssa.gov annually to confirm it matches your W-2.

For Additional Medicare Tax: Box 5 is used to calculate whether you owe the 0.9% Additional Medicare Tax (applies if Box 5 + other wages exceed $200,000 for single filers / $250,000 for married filing jointly). Form 8959 handles this calculation.

State and Local Wages (Boxes 15-20)

Your W-2 may also have state wages (Box 16) and local wages (Box 18) which may differ from Box 1 again — because state and local tax rules for pre-tax deductions sometimes differ from federal rules. For example, some states don't recognize 401(k) deferrals as tax-exempt, so Box 16 for those states might equal your gross pay.

Extract and Verify Your W-2 Data Automatically

If you're manually reconciling W-2 boxes across dozens of employees — or verifying that your payroll system is calculating the correct amounts — w2converter.com extracts Box 1, Box 3, Box 5, all Box 12 entries, and every other W-2 field from uploaded PDFs, returning clean structured data ready for import or verification.