Clarification of Sec. 3401(a) Wages

[Guest Jimmy B]

Could someone please explain to me the difference between W-2 wages and 3401(a) wages? Does 3401(a) wages automatically include Sec. 125 contributions?

[John A]

WARNING: This is not a complete answer, by any means. However, I believe that 3401(a) generally does not include the following items that are included in W-2:

1) Includable Section 105(h), 2) Disqualifying disposition of qualified stock option, 3) taxable group-term life insurance.

For both 3401(a) and W-2, section 125 contributions must be grouped with other nontaxable elective contributions such as 401(k) and all either included or excluded.

These answers are based on 414(s) safe-harbor definitions of compensation. Compensation is a complex issue filled with exceptions to each rule and it is difficult to provide a better answer than this, but I'd love to see anyone else's answer.