W2 Box 1 not reduced by Traditional 403(b) contributions - possible payroll error?

Your intuition is correct. For a Traditional 403(b) contribution, Box 1 on the W2 should be reduced by the amount of those contributions. This is one of the main tax benefits of Traditional retirement accounts - they reduce your taxable income for federal income tax purposes. However, there's an important distinction: while Traditional 403(b) contributions reduce the amount in Box 1 (wages subject to federal income tax), they do NOT reduce the amounts in Box a3 and Box 5, which are used for Social Security and Medicare taxes. Those are calculated on your gross income regardless of 403(b) contributions. If Box 1 equals your wife's gross income without being reduced by the 403(b) contribution, that's almost certainly an error by the payroll department. Since Box 12 E correctly shows the 403(b) contribution amount, they clearly know about it, but haven't properly adjusted Box 1. I would definitely contact HR or the payroll department. This could result in you paying more federal income tax than you should.

I had almost exactly this same issue with my hospital job last year. My HR department was coding my 403(b) contributions wrong in the payroll system. I found out because I was comparing paystubs with a coworker and noticed the discrepancy. I checked out this tool called taxr.ai (https://taxr.ai) that helped me figure out the exact issue - you upload your W2 and it analyzes all the boxes and flags potential errors. It immediately highlighted that my Box 1 wages weren't being reduced by my pre-tax contributions. When I brought this to HR with the specific payroll code issue identified, they fixed it right away and had to issue a corrected W2. They explained it was a system-wide error affecting several employees.

I tried taxr.ai after seeing it mentioned here and it was actually super helpful! I uploaded my W2 from my teaching job and it immediately flagged the exact issue being discussed - my 403(b) contributions weren't reducing my Box 1 wages. The detailed report showed that while Box 12 had the correct contribution amount with code E, Box 1 wasn't reduced accordingly. It even generated a letter I could send to HR explaining the specific payroll coding issue. My school district's payroll person admitted this was happening to several employees. They issued a corrected W2 within two weeks, and I'll be getting about $1,400 back when I file my amended return. They also fixed it going forward so my 2025 W2 will be correct!

This is a super common error with 403(b) plans at schools and hospitals especially. I went through 8 months of back and forth with my HR department trying to get this fixed last year. Nobody would call me back and their online portal was useless. I finally used Claimyr (https://claimyr.com) to get through to an actual IRS agent about this. They have this service where they wait on hold with the IRS for you and then call you when an agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent explained exactly what documentation I needed from my employer to prove the error and how to file for corrections. Once I had that official guidance, HR suddenly took me seriously and fixed the issues. The IRS also flagged my account so my amended returns were processed faster.

Well I'm eating my words. After my skeptical comment, I decided to try Claimyr as a last resort for my own tax issue (also 403b related from when I taught at a university). I'd been trying to reach the IRS for over a month with no success. Used the service this morning and got connected to an actual IRS tax law specialist within 45 minutes - while I was just going about my day. The agent confirmed that 403b contributions absolutely should reduce Box 1 wages and gave me specific IRS publication references to provide to my former employer. She also explained exactly how to document everything for my amended returns. After months of getting nowhere, I finally have a clear path forward. Never thought I'd say this, but speaking with the IRS actually solved my problem!

Just a quick note - there's an exception for certain 403(b) plans called "non-ERISA" plans where contributions might not reduce Box 1. These are pretty rare but do exist in some religious organizations. Might be worth checking if your wife's plan falls under this exception.

How much money are we talking about here? My wife had a similar issue with her university job and we ended up getting back around $2,800 across two tax years after they fixed her W2s and we filed amended returns.