What Does Code C in Box 12 on a W2 Mean?

The W-2 form, officially known as the Wage and Tax Statement, is a tax document employers must provide to their employees each year. It reports an employee’s annual wages, salary, and other compensation, along with federal, state, and local taxes withheld. The W-2 is a foundational document for individuals to prepare and file their federal and state income tax returns with the IRS and relevant state tax agencies. It summarizes an individual’s earnings and tax payments for a given tax year.

Understanding Box 12 on Your W2

Box 12 on the W-2 form reports compensation, benefits, and deductions not directly included in Box 1, which details an employee’s taxable wages. This box uses specific letter codes to identify each reported amount. Employers can include up to four different codes and their corresponding amounts in Box 12, often labeled as 12a, 12b, 12c, and 12d.

The items listed in Box 12 can vary, ranging from retirement plan contributions to non-taxable reimbursements. For instance, Code D indicates elective deferrals to a 401(k) plan, while Code W reports employer contributions to a health savings account (HSA). Code DD shows the cost of employer-sponsored health coverage, which is for informational purposes.

Decoding Code C in Box 12

Code C in Box 12 of a W-2 represents the taxable cost of group-term life insurance coverage exceeding $50,000. Group-term life insurance is a policy an employer provides to its employees as a benefit of employment. While the cost of the first $50,000 of this employer-provided coverage is generally excluded from an employee’s taxable income, any coverage above this $50,000 threshold is considered a taxable benefit to the employee.

The amount shown next to Code C is the dollar value of this taxable benefit. IRS regulations dictate that this amount, which is the imputed cost of the coverage over $50,000, must be included in the employee’s gross income. This ensures employees are taxed on the economic benefit they receive from the employer-provided life insurance beyond the tax-exempt limit.

Tax Implications of Box 12 Code C

The amount reported under Box 12 Code C has already been included in Box 1 of your W-2. This means that when you file your income tax return, you do not need to add this amount to your income again. Its presence in Box 12 serves as an informational item for both the employee and the IRS.

The IRS uses this information to verify that the correct taxable amount of group-term life insurance has been properly included in your Box 1 wages. This helps ensure compliance with federal tax regulations regarding employer-provided benefits. When using tax preparation software or completing tax forms, the amount from Box 12 Code C is an informational entry that the software or form will automatically account for, as it is already part of your overall taxable income.