What Is Code C in Box 12 on Your W-2 Form?

The W-2 form summarizes annual earnings and withheld taxes for employees. It reports various types of income, including wages, tips, and other compensation, along with federal, state, and local income taxes withheld by the employer. Box 12 on the W-2 is a specific section for reporting certain compensation or benefits that may or may not be taxable.

Decoding Box 12 on Your W-2

Box 12 on your W-2 form is divided into subsections, each identified by a letter code followed by a dollar amount. These codes represent different types of income, benefits, or deductions that have specific tax treatments. The Internal Revenue Service (IRS) requires employers to report these items separately because they are treated differently than regular wages for tax purposes. Examples include deferred compensation, employer contributions to health savings accounts, or the cost of certain employer-provided benefits. Code C is one such reporting code found in this box.

Understanding Code C

Code C in Box 12 specifically represents the “Taxable cost of group-term life insurance over $50,000.” Group-term life insurance is a common employer-provided benefit where an employer offers life insurance coverage to a group of employees. The first $50,000 of this coverage is generally considered tax-free to the employee under Internal Revenue Code Section 79.

If employer-provided group-term life insurance coverage exceeds $50,000, the value of the coverage above this threshold is considered a taxable non-cash benefit. This “imputed income” is calculated using uniform premium cost rates from IRS Table I. The calculation considers factors such as the employee’s age and the amount of coverage exceeding $50,000. For instance, an employee with $80,000 in coverage would have the cost of $30,000 in excess coverage ($80,000 – $50,000) included as taxable income.

Tax Implications of Code C

The amount reported under Box 12, Code C, impacts your tax return because it has already been factored into your Box 1 (Wages, Tips, Other Compensation) amount. This means the taxable cost of the group-term life insurance over $50,000 is already included in your total taxable wages for federal income tax purposes. The amount is also included in Boxes 3 and 5 for Social Security and Medicare tax purposes. As a taxpayer, you do not need to add this amount to your income again when filing your tax return. This non-cash benefit has already increased your Box 1 wages. When using tax software or preparing Form 1040, simply ensure the Box 1 amount from your W-2 is correctly entered. The specific Box 12, Code C amount does not require a separate entry on Form 1040, as it is already part of the aggregate Box 1 wages.