What Do the Letters in Box 12 of a W-2 Mean?

The W-2 Form is an annual document employers issue to employees, reporting wages paid and taxes withheld. Box 12 on this form contains letter codes alongside monetary amounts. These codes provide important information about various types of income, deductions, or benefits, which is necessary for accurately preparing a tax return.

Common Box 12 Codes and Their Meanings

Code A indicates uncollected Social Security tax on tips, while Code B signifies uncollected Medicare tax on tips. These amounts generally arise when an employee’s reported tip income, combined with their regular wages, is insufficient to cover the required Social Security and Medicare tax withholdings. Employers report these uncollected amounts in Box 12, and employees are responsible for paying these taxes when filing their individual income tax returns.

Code C represents the taxable cost of group-term life insurance coverage exceeding $50,000. The cost above this threshold is considered taxable income to the employee but is not subject to Social Security or Medicare taxes.

Several codes relate to retirement plan contributions. Code D denotes elective deferrals made to a 401(k) cash or deferred arrangement, including designated Roth contributions. Code E reports elective deferrals under a 403(b) salary reduction agreement, commonly found in educational institutions and certain non-profit organizations.

Code F represents elective deferrals under a 408 salary reduction Simplified Employee Pension (SEP) plan. Code G indicates elective deferrals and employer contributions to a 457(b) deferred compensation plan, often used by governmental entities and tax-exempt organizations. Code H refers to elective deferrals to a 501 tax-exempt organization plan.

Code S reports employee salary reduction contributions under a 408 Savings Incentive Match Plan for Employees (SIMPLE) IRA plan. Code EE signifies designated Roth contributions under a governmental 457(b) plan, similar to traditional 457(b) plans but with Roth tax treatment.

Code J indicates nontaxable sick pay, which is not subject to income tax withholding but may be subject to Social Security and Medicare taxes if paid by an employer or agent. Code P represents excludable military moving expense reimbursements for a permanent change of station.

Code V reports income from the exercise of nonstatutory stock options. This amount represents the difference between the fair market value of the stock on the exercise date and the amount paid for the stock, and it is taxable as ordinary income. Code W shows employer contributions to an employee’s Health Savings Account (HSA), which are excludable from the employee’s gross income.

Code DD signifies the cost of employer-sponsored health coverage. This amount is informational and not taxable income, reported to provide transparency regarding the value of health benefits. Code FF indicates permitted benefits under a qualified small employer health reimbursement arrangement (QSEHRA), which allows small employers to reimburse employees for medical expenses and health insurance premiums.

Code GG represents income from qualified equity grants under section 83, where employees can elect to defer income recognition for up to five years. Code HH denotes aggregate deferrals under section 409A on a nonqualified deferred compensation plan, indicating amounts deferred under plans that do not meet certain tax code requirements.

How Box 12 Codes Impact Your Tax Return

The information from Box 12 directly influences various calculations on your IRS Form 1040. Amounts reported with codes like D, E, F, G, H, and S, representing elective deferrals to retirement plans, reduce your taxable wages reported in Box 1. These pre-tax contributions lower your adjusted gross income (AGI), potentially affecting your eligibility for certain tax credits or deductions.

The taxable cost of group-term life insurance, shown with Code C, is added to your taxable income on Form 1040, even if not included in Box 1 wages. Income from nonstatutory stock options, indicated by Code V, is also included in your gross income. These amounts increase your overall taxable income, impacting your final tax liability.

Certain codes, such as DD for the cost of employer-sponsored health coverage, are purely informational and do not directly affect your taxable income or deductions on Form 1040. They provide transparency but do not require any specific entry on your tax return. Uncollected Social Security and Medicare taxes on tips (Codes A and B) must be reported as additional tax on Schedule 2.

Employer contributions to an HSA, shown with Code W, are excluded from your income, but any distributions from the HSA for non-qualified medical expenses would be taxable. Understanding how each Box 12 code interacts with Form 1040 is necessary for accurate tax reporting.