What's the difference between box 1 vs box 16 on my W-2? Help me understand!

Thanks for explaining! So if box 16 is higher than box 1, does that mean my state is taxing more of my income than the federal government? And do I need to do anything special in TurboTax to make sure I'm using the right numbers for each return?

Yes, that's exactly right - if Box 16 is higher than Box 1, it means some of your deductions reduced your federal taxable wages but not your state taxable wages. Common examples include 401k contributions, which many states still fully tax even though they're pre-tax federally. You don't need to do anything special in TurboTax. When you enter your W-2 information, the software will ask for all the box values, and it automatically applies the Box 1 amount to your federal return and the Box 16 amount to your state return. Just make sure you're entering all the information from your W-2 accurately.

That sounds interesting, but can it actually explain why MY specific W-2 has different numbers? My box 1 and 16 are different by almost $5K and I'd like to understand exactly what's causing that in my situation.

Is this tool free or do I have to pay for it? I'm already spending money on TurboTax and don't want to spend more just to understand my W-2. Also, is it secure? I'm always cautious about uploading tax documents online.

It actually does give you personalized explanations! When you upload your W-2, it analyzes all your specific numbers and tells you exactly what's contributing to the differences in your case. For me, it showed that $3,200 was from my 401k and another $1,400 was from my health insurance premiums that were paid pre-tax federally but not for state. There's a free version that lets you analyze your documents and get basic explanations. They have premium features too, but the explanation for W-2 boxes is available in the free version. And yes, they use bank-level encryption - I was worried about that too, but they explain their security measures on the site.

How does this even work? The IRS phone system is notoriously impossible to get through. Is this service somehow jumping the queue or something? Seems sketchy to me.

Yeah right. Nothing can get you through to the IRS faster. I've tried calling them dozens of times and always get the same automated message. I bet this is just another scam trying to get money from desperate people during tax season.

It's actually pretty straightforward - they use a system that continuously calls the IRS for you and then connects you when they get through. It's not jumping any queue, just automating the calling process so you don't have to keep redialing yourself. They explain it all in that video link I posted. The reason I tried it was because I had a complicated situation with contract work and W-2 income, and I needed to speak to someone directly. I was skeptical too at first, but it worked exactly as advertised and saved me hours of frustration.

Great point! I've always wondered why Box 5 was higher than the others. Is that only for Medicare tax or does Social Security use the same amount?

Box 5 (Medicare wages) and Box 3 (Social Security wages) are often the same amount, but they can differ if you earn above the Social Security wage base limit. For 2024, Social Security tax only applies to the first $168,600 of your earnings, while Medicare tax applies to all your earnings with no limit. So if you make less than the wage base limit, Boxes 3 and 5 will typically show the same amount. If you make more than that limit, Box 5 will be higher than Box 3.

that happened to me last year!! my employer somehow mixed up my info with another employee and i almost filed with the wrong W-2. how did you handle it? did you contact HR or the IRS?

This is really helpful! I'm also new to filing my own taxes and had no idea that pre-tax deductions worked differently for state vs federal. Quick question - if I'm not contributing to a 401k yet, what else could cause Box 16 to be higher than Box 1? I have health insurance through my employer but I'm not sure if that's pre-tax or not. Is there a way to tell from my paystub?

Great question! Health insurance premiums are usually pre-tax, and that's probably what's causing your difference. On your paystub, look for a section that shows deductions - it might be labeled "Pre-Tax Deductions," "Before-Tax Deductions," or just "Deductions." Health insurance is often listed as "Medical," "Health Ins," or something similar. If it's in the pre-tax section, that means it reduces your federal taxable wages (Box 1) but your state might still tax it (Box 16). You might also have other pre-tax items like dental insurance, vision insurance, or even commuter benefits if your employer offers them. The easiest way to confirm is to add up all your pre-tax deductions from your paystubs for the year and see if that roughly matches the difference between Box 16 and Box 1 on your W-2. Don't worry too much about getting it perfect - the important thing is understanding that this difference is totally normal!

This is exactly the kind of breakdown I needed to see! I was getting stressed about the difference in my numbers, but your example really puts it in perspective. I do have both 401k contributions and health insurance through work, so that probably explains the gap. One quick follow-up question - when you say your state doesn't give a tax break for 401k contributions, does that mean I'll end up paying more in state taxes than I would have without the 401k? Or is it just that the state calculates taxes on a higher income amount? I want to make sure I'm not accidentally hurting myself by contributing to retirement!