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

The Form W-2 is an annual summary of your earnings and the taxes your employer withheld, providing a breakdown of compensation used to prepare your tax returns. While much of the form is straightforward, the codes in Box 12 can require a closer look to understand their meaning and impact on your taxes.

Defining Code C in Box 12a

Code C in Box 12a of your Form W-2 represents the taxable cost of group-term life insurance coverage provided by your employer. This type of insurance provides a death benefit to your beneficiaries if you pass away while employed and is offered to a group of employees, rather than as an individual policy.

The Internal Revenue Service (IRS) allows the first $50,000 of this coverage to be a tax-free benefit. The amount reported with Code C is the calculated value for employer-provided coverage that exceeds this $50,000 threshold.

This reported amount is a non-cash fringe benefit. For example, if your employer provides you with a $150,000 group-term life insurance policy, the value for the $100,000 of coverage above the tax-free limit is what appears in Box 12 with Code C. This is not an amount you received in cash, but a taxable benefit you received.

How the Code C Amount Is Calculated

The dollar value next to Code C is not the actual premium your employer paid for the life insurance policy. Instead, this figure is “imputed income.” The IRS requires employers to calculate this taxable benefit using a specific formula, ensuring a uniform method is applied for all employees.

This calculation is based on the IRS Uniform Premium Table I, found in IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits. The table provides a monthly cost per $1,000 of insurance coverage, and the rate is determined by the employee’s age. The older an employee is, the higher the rate used in the calculation.

To determine the amount for Code C, the employer takes the insurance coverage over $50,000, divides it by 1,000, and multiplies it by the cost-per-thousand from the IRS table that corresponds to your age. This monthly amount is then multiplied by the number of months you had the coverage to arrive at the annual taxable value.

Tax Implications of the Code C Amount

The amount reported with Code C is for informational purposes, as its tax impact has already been handled elsewhere on your W-2. The value shown has been included as part of your total taxable wages in Box 1 (Wages, tips, other compensation). It is also included in the wages subject to Social Security and Medicare taxes, reported in Box 3 and Box 5.

Because this imputed income is already part of your gross taxable wages, you do not need to add this amount again when you file your income tax return. Doing so would result in you reporting the same income twice and overpaying your taxes. Its purpose in Box 12 is to show the specific value of the taxable benefit you received.

When preparing your tax return, the figure in Box 1 of your W-2 is the number you will transfer to your Form 1040 as wages. The details in Box 12, including Code C, provide a breakdown of how that total wage amount was calculated. It helps explain why the wages reported in Box 1 may be higher than your take-home pay.