On your W-2, the wages in Box 1 and the Medicare wages in Box 5 usually differ because pre-tax retirement contributions and a few other items are removed from income tax wages but still count as wages for Medicare tax. If you put $24,500 into a traditional 401(k) in 2026, your Box 5 will exceed your Box 1 by at least that amount. That gap is not an error, and understanding it matters for your withholding, your return, and whether you owe the Additional Medicare Tax.
What Each Box Measures
Box 1 is the compensation your employer treats as taxable for federal income tax. It starts with gross pay and subtracts the pre-tax deductions the tax code shelters from income tax.1Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 Box 1 is the number you carry to Form 1040.
Box 5 is the compensation subject to the Medicare portion of FICA.1Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 Unlike Social Security tax, which stops at an annual wage base ($184,500 in 2026), Medicare tax has no ceiling.2Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Every dollar of covered wages is hit with the 1.45% employee Medicare tax. Because fewer deductions reduce Box 5 than Box 1, Box 5 is almost always the larger number.
Why Box 5 Is Usually Larger
Traditional 401(k) and 403(b) elective deferrals are the biggest reason. These contributions aren’t treated as current income for federal income tax, so they lower Box 1. But the IRS still counts them as wages for Social Security and Medicare, so they stay in Box 5.3Internal Revenue Service. 401(k) Resource Guide – Plan Participants – 401(k) Plan Overview
The 2026 elective deferral limit is $24,500, plus an $8,000 catch-up if you’re 50 or older.4Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Max out a traditional 401(k) and your Box 5 will run at least $24,500 above your Box 1 before anything else is factored in. Governmental 457(b) deferrals work the same way, and traditional 403(b) deferrals for public school and nonprofit employees follow identical rules.5Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
Roth Contributions Do Not Create a Gap
Roth 401(k) contributions are made with after-tax dollars, so they stay in both Box 1 and Box 5.6Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts You pay income tax and Medicare tax on the same amount now, and in exchange qualified distributions later come out tax-free. If your gap looks smaller than your total retirement contributions, a Roth election is often the reason.
Deductions That Reduce Both Boxes
Some pre-tax deductions come out of both Box 1 and Box 5, so they don’t widen the gap.
Section 125 Cafeteria Plan Benefits
Health, dental, and vision premiums paid through a Section 125 cafeteria plan are excluded from both income tax wages and FICA wages. The IRS treats salary redirected into a cafeteria plan as if you never received it.7Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans This is one of the few payroll deductions that genuinely lowers your Medicare tax liability.
HSA Contributions Through Payroll
When HSA contributions run through a Section 125 cafeteria plan, they’re treated as employer contributions and are exempt from income tax and employment taxes.8Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans Both Box 1 and Box 5 shrink. Contribute to an HSA outside of payroll and you can deduct it on your return, but you still owe Medicare and Social Security tax on that money. The payroll route is more tax-efficient.
Educational Assistance
Employer-paid educational assistance up to $5,250 a year is excluded from income and from FICA, so it reduces both boxes.9Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education Anything above $5,250 is taxable compensation and lands in both Box 1 and Box 5.
Less Common Sources of a Gap
Nonqualified Deferred Compensation
Nonqualified deferred compensation creates a timing split between the two boxes that can last years. FICA applies when the deferred amount vests (or when the services are performed, if later), so it lands in Box 5 in the year of vesting even though no cash changes hands. Income tax doesn’t apply until the employer actually pays the money out, so Box 1 stays lower until then. When the eventual payout arrives, the flow reverses: the distribution goes into Box 1 but is generally excluded from Box 5 because the Medicare tax was already paid.
Group-Term Life Insurance Over $50,000
Employer-provided group-term life coverage above $50,000 creates imputed income calculated from IRS tables, and that amount is subject to both income tax and FICA. For current employees it’s reported in Box 1, Box 3, and Box 5.10Internal Revenue Service. Publication 15-B (2026), Employers Tax Guide to Fringe Benefits It hits both boxes equally, so it doesn’t widen the gap.
Why the Gap Matters at Tax Time
Box 5 drives the Additional Medicare Tax. Once your Medicare wages cross a threshold set by your filing status, an extra 0.9% applies on top of the regular 1.45%, bringing the employee-side rate to 2.35% on wages above the line. The thresholds are:
- $200,000 for single, head of household, and qualifying surviving spouse
- $250,000 for married filing jointly
- $125,000 for married filing separately
Your employer starts withholding the extra 0.9% once wages from that job pass $200,000 in a calendar year, no matter your filing status.1Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 The employer doesn’t know about your spouse’s income, so two common mismatches show up. A married couple whose combined wages exceed $250,000 but where neither spouse individually earns over $200,000 will have nothing withheld, yet still owes the tax at filing.11Internal Revenue Service. Questions and Answers for the Additional Medicare Tax The reverse also happens: a married employee earning $210,000 has the extra withheld on $10,000, and if the household stays under $250,000 combined, the overwithholding comes back on the return.
The final calculation happens on Form 8959, which pulls together your Medicare wages, your spouse’s Medicare wages if you file jointly, and any self-employment income.12Internal Revenue Service. Instructions for Form 8959 (2025) There is no employer match on the Additional Medicare Tax. The full 0.9% is on you.2Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates If you know your household will cross the threshold but no single employer will withhold enough, you can make estimated tax payments or submit a new W-4 requesting extra income tax withholding to cover it.11Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
How to Check Your Own W-2
Reconciling the two boxes is straightforward once you know which deductions hit which box. Work backward from your gross pay for the year:
- Box 5 equals gross pay minus only the items exempt from FICA: Section 125 cafeteria plan premiums, payroll HSA contributions, and educational assistance under $5,250. Traditional 401(k) deferrals do not reduce this figure.
- Box 1 equals gross pay minus all pre-tax deductions, including traditional 401(k) and 403(b) deferrals, Section 125 benefits, and payroll HSA contributions.
The difference between Box 5 and Box 1 should roughly match your traditional 401(k) or 403(b) deferrals for the year, plus any nonqualified deferred compensation that vested. If it doesn’t, ask payroll for a year-end breakdown. Catching an error before you file is far easier than amending later.