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What Does W-2 Compensation Really Mean? describes how the W-2 definition of compensation should generally be Box 1 of Form W-2, adjusted for elective deferrals (when applicable), and notes the complications of Roth deferrals and the problems with using Box 5 compensation:

The short answer is that the W-2 definition reflects Box 1 of Form W-2, "Wages, tips, and other comp." This is the number a taxpayer uses to complete Form 1040. However, for 415 purposes (and for purposes of the various Code sections which are based on the 415 definition of compensation, such as the top-heavy rules), the plan must add back in elective deferrals. For this purpose, elective deferrals include deferrals to:

  • Qualified plans
  • 403(b) plans
  • 457(b) plans
  • Salary reduction SEPs
  • SIMPLE IRAs
  • Cafeteria plans
  • Qualified transportation fringe benefit arrangements

Complicating this calculation is the fact that Roth deferrals are already included in income under Box 1. So, when adding back qualified plan deferrals, one is actually adding back only traditional, pre-tax deferrals.

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