W-2 Box 1, 3, and 5 Do Not Match the Payroll Register
A draft W-2 for A. Rivera shows Box 1 $60,000, Box 3 $60,000, and Box 5 $60,000. The payroll register shows the same $60,000 salary, plus these items: 401(k) elective deferral $6,000; Section 125 health premium $3,000; employer 401(k) match $3,000; group-term life imputed income $800 for coverage above $50,000; and personal use of a company vehicle $1,000. The payroll system maps all 'gross pay' to all three W-2 boxes. Payroll says the W-2 is fine because 'gross wages are gross wages.'
1. Compute the correct W-2 Box 1, Box 3, and Box 5 amounts.
Read the worked answer
Box 1: $60,000 - $6,000 401(k) - $3,000 Section 125 + $800 group-term life + $1,000 vehicle = $52,800.
Box 3 and Box 5: $60,000 - $3,000 Section 125 + $800 group-term life + $1,000 vehicle = $58,800.
The employer 401(k) match is excluded from all three boxes. The 401(k) elective deferral reduces Box 1 but not Box 3/5. The Section 125 health premium reduces Box 1 and Box 3/5. The group-term life imputed income and personal vehicle use are taxable and included in Box 1, 3, and 5.
2. What system configuration error likely caused the draft W-2, and what should be checked?
Read the worked answer
The draft shows all three boxes equal to gross salary, which suggests the system is using one taxable-wage field for every W-2 box. Check:
- pay-code taxability flags for federal income tax, Social Security, and Medicare;
- Section 125 plan setup and pre-tax deduction treatment;
- 401(k) deferral coding as excluded from Box 1 but included in Box 3/5;
- imputed income setup for group-term life and vehicle use;
- employer match coding as nontaxable;
- W-2 box mapping and year-end reconciliation.
The system should calculate separate Box 1, Box 3, and Box 5 taxable wage bases, not map gross pay to all boxes.
3. How would the answer change if the vehicle were used 100% for business and the group-term life coverage were $50,000 or less?
Read the worked answer
If the vehicle were used 100% for business and substantiated under an accountable plan, there would be no personal-use imputed income, so the $1,000 would drop out. If group-term life coverage were $50,000 or less, there would be no imputed income, so the $800 would drop out. Box 1 would then be $60,000 - $6,000 - $3,000 = $51,000; Box 3 and Box 5 would be $60,000 - $3,000 = $57,000.