Your W-2 has one number that the IRS treats as your wage income, and it is usually neither your salary nor your taxable income. Getting from one to the other is a two-step subtraction, and both steps are on the form itself.
What each box on the W-2 is for
The boxes are not interchangeable. Only one of them feeds your taxable income calculation.
| Box | Label on the form | What it is used for |
|---|---|---|
| 1 | Wages, tips, other compensation | Federal income tax — this is the number you start from |
| 2 | Federal income tax withheld | Your prepayment of income tax for the year |
| 3 | Social security wages | Base for the 6.2% Social Security tax |
| 4 | Social security tax withheld | 6.2% of box 3 |
| 5 | Medicare wages and tips | Base for the 1.45% Medicare tax |
| 6 | Medicare tax withheld | 1.45% of box 5 |
Boxes 3 and 5 are there for payroll taxes. They do not enter the income tax calculation, and in a normal year box 5 equals box 3. The IRS describes each entry in the General Instructions for Forms W-2 and W-3 and on the About Form W-2 page.
Why box 1 is not your salary
Two common payroll deductions never reach box 1:
- Pre-tax retirement deferrals. Employee contributions to a 401(k) or 403(b) plan are deducted from your salary before the W-2 is prepared. The instructions are explicit that box 1 does not include elective deferrals, and that those same deferrals are reported in box 3 because they stay subject to Social Security and Medicare tax.
- Section 125 cafeteria plan premiums. Health, dental and dependent care premiums paid through a cafeteria plan are excluded from wages, and under Publication 15 that exclusion extends to Social Security and Medicare taxes too.
So a $90,000 salary with a $6,000 pre-tax 401(k) deferral and $2,400 of Section 125 health premiums produces:
- Box 1: $81,600 — $90,000 − $6,000 − $2,400
- Box 3: $87,600 — box 1 plus the $6,000 deferral that is still taxed for Social Security
- Box 4: $5,431.20 — 6.2% of $87,600
- Box 5: $87,600, and box 6: $1,270.20 — 1.45% of $87,600
Notice the deferral is invisible to income tax but fully visible to payroll tax. That single fact explains most of the gap people see between their salary and box 1.
Step 1: from box 1 to adjusted gross income
Box 1 from every Form W-2 you receive is added together on the wages line of your return. From there, the above-the-line adjustments come off — the deductible half of self-employment tax if you also work for yourself, HSA contributions, a traditional IRA contribution, and a few others.
Adjusted gross income = boxes 1 (all W-2s) + other income − adjustments
Step 2: from AGI to taxable income
Taxable income is AGI minus your deduction:
Taxable income = AGI − deduction (− qualified business income deduction)
For most filers the deduction is the 2026 standard deduction from Rev. Proc. 2025-32: $16,100 single, $32,200 married filing jointly, $24,150 head of household, $16,100 married filing separately. Itemizing only helps when mortgage interest, state and local taxes, charitable gifts and medical expenses together beat that amount, as Tax Topic 501 explains. Tax Topic 551 covers how the deduction itself works.
Example: one W-2, $78,000, single
- Box 1: $78,000
- Standard deduction: −$16,100
- Taxable income: $61,900
The 2026 brackets then apply: 10% on the first $12,400 = $1,240, 12% on the next $38,000 = $4,560, and 22% on the last $11,500 = $2,530. Federal income tax is $8,330, or 10.68% of box 1 — well under the 22% marginal rate, because only income above $50,400 of taxable income is taxed at 22%. Put your own box 1 into the income tax calculator to see the same split.
Example: one W-2, $130,000, married filing jointly
- Box 1: $130,000
- Standard deduction: −$32,200
- Taxable income: $97,800
- Tax: 10% × $24,800 = $2,480 plus 12% × $73,000 = $8,760 → $11,240
Two W-2s: add the boxes, then expect a balance due
When you changed jobs, or held two jobs at once, you get two W-2s. The calculation is the same, with one trap: there is only one standard deduction, but each employer withheld as if it had your only job.
A single filer with two W-2s — box 1 of $52,000 and box 1 of $26,000:
- Total box 1: $78,000
- Taxable income: $78,000 − $16,100 = $61,900
- Tax on that: $8,330 (identical to the one-W-2 case above)
Now look at box 2 on each form. Applied separately, each employer subtracted the full $16,100 standard deduction from its own payroll:
- Employer A on $52,000: taxable $35,900 → withheld $4,060
- Employer B on $26,000: taxable $9,900 → withheld $990
Box 2 adds up to $5,050 against a real liability of $8,330 — a $3,280 balance due in April, even though neither payroll department made an arithmetic mistake. The fix on the employee side is Form W-4, whose Step 2 (multiple jobs) tells each employer to stop assuming it is your only job; Tax Topic 753 explains what each W-4 step controls. Step 4(c) works too if you prefer to name an extra dollar amount per paycheck.
Checking box 2 against reality
Box 2 is a prepayment, not a final bill. The 2026 withholding tables in IRS Publication 15-T embed the standard deduction, so a single filer paid $1,500 a week has $78,000 annualized, $61,900 taxable, $8,330 of annual tax and $160.19 withheld per week — plus $93.00 of Social Security and $21.75 of Medicare. Over 52 weeks box 2 lands on roughly $8,330, which matches the liability: no refund, nothing due.
Anything that changes the picture after December — a year-end bonus, a second job, a large capital gain, a mid-year raise — moves one side of the comparison and not the other. That is where refunds and surprise balances come from. The tax withholding calculator reconciles box 2 with the real figure, the estimated tax calculator covers income that has no withholding at all, and the 1099 tax calculator handles the self-employed mirror of this problem — for 1099 work there is no box 2 and no employer withholding, only quarterly payments.
The box definitions used above come from the General Instructions for Forms W-2 and W-3; the 2026 brackets and standard deduction are from Rev. Proc. 2025-32, and the withholding method is the percentage method in Publication 15-T.