What Does Box 12 Code C on a W-2 Mean?

The W-2 Form, officially known as the Wage and Tax Statement, provides a comprehensive summary of an employee’s annual earnings, along with the federal, state, and local taxes withheld by their employer. This form is a fundamental document for preparing annual income tax returns. Understanding each section of the W-2 is important for accurate tax preparation and compliance with tax regulations.

Understanding Box 12 on Your W-2

Box 12 on your W-2 Form reports various types of compensation, benefits, or deductions not typically included in Box 1, which represents your total taxable wages, tips, and other compensation. This box uses specific letter codes to identify the nature of the amounts reported, providing additional information to both the employee and the Internal Revenue Service (IRS).

The amounts in Box 12 might represent items like deferred compensation, employer contributions to a Health Savings Account (HSA), or the cost of employer-sponsored health coverage. While these amounts are reported separately, their tax treatment can vary significantly depending on the specific code used.

Decoding Code C

Code C in Box 12 of your W-2 represents the “taxable cost of group-term life insurance over $50,000.” Group-term life insurance refers to a life insurance policy provided to employees by their employer. Under Internal Revenue Code Section 79, the first $50,000 of this coverage is generally not considered taxable income to the employee.

The amount reported under Code C is the taxable value of any coverage that exceeds this $50,000 exclusion. This value is calculated using IRS Uniform Premium Cost Tables, which factor in the employee’s age as of the last day of the tax year. For example, an employee aged 40-44 has a monthly cost of $0.10 per $1,000 of coverage for this calculation. The total taxable amount is determined by multiplying the monthly cost by the number of full months the coverage was active.

Tax Implications of Code C

The amount shown in Box 12 with Code C has already been included in your total wages reported in Box 1 of your W-2. This separate reporting in Box 12 serves as an informational item, highlighting this specific taxable benefit.

This amount is also subject to Social Security and Medicare taxes, commonly known as FICA taxes. The Code C amount is included in the figures reported in Box 3 (Social Security wages) and Box 5 (Medicare wages) on your W-2, up to the Social Security wage base limit. Since the amount is already part of your Box 1 wages, you generally do not need to add it again when reporting income on your federal income tax return. While it is taxable income, federal income tax is typically not withheld directly from this specific amount by your employer.