What Is Box 12 on a W2 and What Do the Codes Mean?

The W-2 form serves as an important annual document for taxpayers, detailing wages earned and taxes withheld throughout the year. Among its various sections, Box 12 stands out as a significant area. This box is used to report a range of compensation and benefits that impact an individual’s tax situation. Understanding the entries in Box 12 is important for accurate tax filing.

Decoding Box 12

Box 12 on the W-2 form provides specific information about income, benefits, or deductions not typically found in Boxes 1 through 11. Employers use single or double letter codes, followed by a corresponding dollar amount, to denote these items. These codes are standardized by the Internal Revenue Service (IRS) to ensure consistent reporting. An individual’s W-2 might contain multiple entries in Box 12, each representing a different type of reported item. The amounts listed are either informational, represent pre-tax contributions, or reflect taxable benefits, and incorrect reporting can lead to issues with the IRS.

Key Box 12 Codes and Their Meanings

Code C

This code represents the taxable cost of group-term life insurance coverage exceeding $50,000. While this amount is reported in Box 12, it is also included in Boxes 1, 3, and 5 of the W-2 as taxable wages. This entry serves as an informational item to indicate the value of the employer-provided life insurance benefit that is subject to taxation.

Code DD

This code reports the total cost of employer-sponsored health coverage. This includes both the portion paid by the employer and any amounts the employee paid through payroll deductions. The amount reported under Code DD is for informational purposes only and does not affect an individual’s taxable income. It helps the IRS monitor the cost of health care coverage as mandated by the Affordable Care Act (ACA).

Code E

This entry signifies elective deferrals made under a Section 403(b) plan. A 403(b) plan is a retirement plan typically available to employees of public schools and certain tax-exempt organizations. The amount shown here represents pre-tax contributions made by the employee, which reduce current taxable income.

Code G

This code indicates elective deferrals and employer contributions, including nonelective contributions, to a Section 457(b) deferred compensation plan. These plans are often used by employees of state and local governments, as well as certain tax-exempt organizations. The contributions are generally pre-tax, reducing the employee’s current taxable income.

Code P

This code is specifically for excludable moving expense reimbursements paid directly to a member of the Armed Forces. These reimbursements are typically not included in Boxes 1, 3, or 5 as taxable income. The presence of this code informs the taxpayer that these specific moving expenses were reimbursed and are excluded from their income.

Code S

This code denotes employee salary reduction contributions made under a Section 408(p) SIMPLE IRA plan. A SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) is a retirement plan for small businesses. These contributions are pre-tax, reducing the employee’s gross income for the year.

Code V

This entry reports income derived from the exercise of nonstatutory stock options. The amount shown represents the difference between the fair market value of the stock and the exercise price of the option. This income is generally included in Boxes 1, 3, and 5 of the W-2 as taxable wages.

Code W

This code indicates employer contributions to a Health Savings Account (HSA), which can include amounts the employee elected to contribute through a cafeteria plan. HSAs are tax-advantaged savings accounts used for healthcare expenses. The amounts contributed are generally not included in Boxes 1, 3, or 5, as they are typically tax-deductible or excludable from income.

Code AA

This code represents designated Roth contributions made under a Section 401(k) plan. Unlike traditional 401(k) contributions, Roth 401(k) contributions are made with after-tax dollars. While they do not reduce current taxable income, qualified distributions from these accounts in retirement are tax-free.

Code BB

This entry signifies designated Roth contributions made under a Section 403(b) plan. Similar to Roth 401(k)s, these contributions are made with after-tax funds. The benefit of Roth contributions lies in tax-free withdrawals during retirement, provided certain conditions are met.

Code CC

This code indicates designated Roth contributions made under a Section 457(b) plan. These contributions are also made on an after-tax basis, allowing for tax-free withdrawals in retirement. It is important to note that as of recent IRS guidance, Code CC is sometimes listed as “currently not used” or may apply to governmental 457(b) plans.

Using Box 12 Information for Tax Filing

While some codes represent taxable income already included in Box 1 wages, others indicate pre-tax contributions that reduce taxable income, and some are purely for informational purposes. For instance, contributions to retirement accounts like 401(k)s or 403(b)s (Codes E, G, S) represent amounts that were deducted from gross pay before taxes were calculated. When individuals prepare their tax returns, whether using tax software or paper forms, they will typically be prompted to enter the specific Box 12 codes and their corresponding amounts. For example, amounts for health savings accounts (Code W) or nonstatutory stock options (Code V) have specific forms or schedules where they must be reported, such as Form 8889 for HSAs. Accurately transferring these details from the W-2 to the tax return is important for ensuring compliance with tax regulations and calculating the correct tax liability or refund.