Every January, people line up their W-2 against their final pay stub of the year and find the numbers don't agree. Usually that's not a mistake. Your W-2 reports several different kinds of wages, each with its own rules, while the gross figure on your stub is simply everything you earned. Once you know what each box includes, you can reconcile them in a few minutes.
Start with the right pay stub
The W-2 covers wages paid during the calendar year, not wages earned. A paycheck for the last week of December that lands on January 2 belongs to next year's W-2. So the stub to compare against is the last one with a pay date in the tax year. Its year-to-date (YTD) column is your starting point.
Box 1: federal taxable wages
Box 1 is gross pay minus the deductions that are exempt from federal income tax, and plus any taxable benefits that never appeared as cash:
- Subtract traditional 401(k), 403(b), and 457(b) contributions.
- Subtract Section 125 deductions — health, dental, and vision premiums, HSA and FSA contributions.
- Subtract pre-tax commuter benefits.
- Add imputed income, such as employer-paid group-term life insurance over $50,000 or personal use of a company car.
If you contribute to a 401(k) and pay for health insurance through work, Box 1 will be noticeably lower than your YTD gross. Pre-tax vs. post-tax deductions explains why those come off first.
Box 3: Social Security wages
Box 3 is usually higher than Box 1, which surprises people. Retirement contributions to a traditional 401(k) are exempt from income tax but not from Social Security, so they stay in Box 3. Section 125 deductions come out of both.
Box 3 also has a ceiling. Social Security tax applies only up to the annual wage base — $184,500 for 2026 — so anyone earning more will see Box 3 stop at that figure, however much they made.
Box 5: Medicare wages
Box 5 starts from the same figure as Box 3 but has no ceiling. For most people below the wage base, Boxes 3 and 5 are identical. Above it, Box 5 keeps going.
State and local boxes
Boxes 16 and 18 report state and local wages. They often match Box 1, but a state with different rules on retirement contributions or HSAs will produce a different figure. If you worked in more than one state, you'll see a line for each.
Reconciling, step by step
With your final stub and W-2 side by side:
- Write down YTD gross from the stub.
- Subtract YTD traditional retirement contributions, pre-tax insurance, HSA, FSA, and commuter deductions.
- Add any imputed income shown on the stub.
- Compare the result with Box 1.
- For Box 3, add the retirement contributions back, then cap the total at the wage base.
If your stub shows YTD totals for each deduction, this takes minutes. If it doesn't, your employer's payroll portal usually has a year-end summary.
What Box 12 is telling you
Box 12 holds coded amounts that explain some of the gap. A few worth knowing:
| Code | What it means |
|---|---|
| D | Traditional 401(k) contributions |
| E | 403(b) contributions |
| W | HSA contributions, yours and your employer's together |
| AA | Roth 401(k) contributions |
| DD | Cost of employer health coverage — informational only, not taxable |
| C | Taxable group-term life insurance over $50,000 |
Code DD trips people up most. It's often a large number, but it's there for reporting, not taxation, and it doesn't affect your return.
When the gap is a real error
Ask your payroll department to check if:
- Box 1 is higher than YTD gross and you have no imputed income.
- Social Security tax withheld (Box 4) is more than 6.2% of Box 3.
- Your name or Social Security number is wrong.
- A state you never worked in appears, or one you did is missing.
An employer fixes these with a corrected Form W-2c. If you had two employers and together they withheld more Social Security than the yearly maximum, that's not an error — you claim the excess back on your tax return. But if a single employer withheld too much, they have to refund it; it can't be claimed on your return. What to do when your pay stub is wrong covers raising errors with payroll.
If your W-2 hasn't arrived at all, see how to get your W-2 from a previous employer.
Keep that final stub
Your last stub of the year is the best cross-check you have on your W-2, and some lenders ask for it alongside the form. It's worth keeping with your tax records — how long to keep pay stubs covers the timelines.
This article is general information, not tax advice. For your own return, check with a tax professional.
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