What Does Box 12 Code E Mean on Your W-2?

Your annual Form W-2, Wage and Tax Statement, provides a summary of your earnings and the taxes withheld by your employer. While boxes for wages and federal income tax are straightforward, Box 12 can be confusing because it reports different types of compensation and benefits using special codes. The Internal Revenue Service (IRS) uses these codes to identify items, such as contributions to a retirement plan or the cost of employer-sponsored health coverage, each with specific tax rules.

Defining Code E and 403(b) Plans

Code E in Box 12 of your W-2 identifies your contributions to a Section 403(b) retirement plan. These contributions are known as elective deferrals, meaning you have elected to have a portion of your salary deferred into this retirement account. The amount shown is the total you contributed for the year through payroll deductions.

A 403(b) plan is a tax-sheltered retirement plan available to employees of certain public and non-profit institutions. Employers that offer these plans include public schools, colleges, universities, hospitals, and some charitable organizations established under Internal Revenue Code Section 501.

These plans function similarly to 401(k)s, but the primary distinction is the type of employer that can offer them. While 401(k)s are offered by for-profit companies, 403(b) plans are reserved for specific non-profit and public-sector employers.

Tax Treatment of Code E Contributions

Code E contributions are made on a pre-tax basis, meaning they are subtracted from your gross pay before your federal and, in most cases, state income taxes are calculated. This reduces your taxable income for the year, which in turn lowers your income tax liability.

For example, an employee with a $50,000 salary who contributes $4,000 to their 403(b) plan will have their contribution reported in Box 12 with Code E. Their taxable wages, reported in Box 1 of the W-2, would be $46,000 ($50,000 – $4,000), and this lower figure is used to determine federal income tax.

While these elective deferrals reduce your income for income tax purposes, they do not reduce the wages subject to FICA taxes. Your full gross salary is still used to calculate Social Security and Medicare taxes, which are reported in Box 3 and Box 5. The tax benefit is deferred, as you will pay ordinary income tax on the contributions and their earnings when you withdraw them in retirement.

Reporting on Your Tax Return

When it comes time to file your annual tax return, the information in Box 12 is used for verification and to determine eligibility for certain tax benefits. For most taxpayers, the amount listed with Code E does not require a separate entry on Form 1040 to claim a deduction.

When using tax preparation software, you will be prompted to enter all information from your W-2 exactly as it appears. This includes entering the letter “E” and the corresponding dollar amount from Box 12. The software uses this data to confirm that your contributions are within the annual limits set by the IRS and to calculate any additional credits you may be eligible for.

One such benefit is the Retirement Savings Contributions Credit, often called the Saver’s Credit. This credit is designed to help mid- and low-income taxpayers offset the cost of saving for retirement. Your eligibility is based on your adjusted gross income (AGI) and filing status. The amount you contributed to your 403(b) plan is used on Form 8880, Credit for Qualified Retirement Savings Contributions, to calculate the amount of the credit.