Box 1 of Form W-2 shows the employee's total compensation that is subject to taxation for the year. Per an article published by Forbes, "This tends to be the number most taxpayers care about the most." Consequently, there's no room for error.
Below are inclusions and exclusions for Box 1 plus a brief explanation of the difference between Box 1, Box 3 and Box 5.
All taxable wages, tips and other compensation should go in Box 1. This includes:
Box 1 should not contain:
Difference between Box 1, Box 3 and Box 5
The total wages for Box 3 and Box 5 may differ from the amount in Box 1 because not all taxable wages are subject to the same taxes. For example, some wages are subject to federal income tax but not to Social Security and Medicare taxes, and vice versa. To accurately compute Box 1, Box 3 and Box 5, you must know which federal taxes should be withheld from the taxable wage in question.
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