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

The W-2 form, officially known as the Wage and Tax Statement, is used by employers to report an employee’s annual wages and taxes withheld to both the employee and the Internal Revenue Service (IRS). It summarizes an individual’s earnings and tax contributions for a given year.

Box 12 on the W-2 reports compensation, benefits, and deductions not typically found in primary wage boxes. It uses single-letter codes, followed by a dollar amount, to identify each reported item. These codes provide additional detail about an employee’s compensation.

Understanding Code C

Code ‘C’ in Box 12 of a W-2 signifies the taxable cost of employer-provided group-term life insurance coverage exceeding $50,000. Federal tax law, under Internal Revenue Code Section 79, considers the value of this insurance above $50,000 as a non-cash fringe benefit subject to income tax. Its value is considered part of their taxable compensation, even though the employee does not receive it in cash.

Employers calculate this “imputed income” based on coverage exceeding $50,000. This calculation uses uniform premium tables, like IRS Table I, which factor in the employee’s age to determine the monthly cost per $1,000 of coverage. The calculated amount is added to the employee’s taxable wages.

The imputed income amount for Code ‘C’ is already included in Box 1 (Wages, tips, other compensation), Box 3 (Social Security wages), and Box 5 (Medicare wages and tips) totals on the W-2. This prevents double-counting when preparing tax returns. Employees who receive employer-provided group-term life insurance policies with coverage amounts exceeding $50,000 will typically see Code ‘C’ on their W-2.

Tax Treatment of Code C

The amount reported under Code ‘C’ in Box 12 has a specific tax treatment on a taxpayer’s federal income tax return. Since this amount is already included in Box 1, Box 3, and Box 5 wage figures, taxpayers do not add it again to their income when filing. The value indicated by Code ‘C’ is not an amount to be separately added or subtracted from income.

Code ‘C’ serves as an informational item, confirming the imputed income from excess group-term life insurance is included in reported taxable wages. There is no special deduction, credit, or separate reporting line on Form 1040 for this amount. Tax preparation software or a professional tax preparer automatically accounts for this amount, as it is already part of the total taxable income in Box 1.

The amount next to Code ‘C’ does not need to be separately added to income or represent a deductible expense. Its inclusion in Box 12 provides transparency and verifies the employer correctly accounted for this non-cash benefit as taxable income within other wage boxes. Taxpayers should ensure the overall wage figures on the W-2 are accurate.