What Is Code C on a W2 and How Does It Affect Taxes?

The W-2 form is an important document, providing a summary of annual earnings and withholdings. This form includes various codes in Box 12, each representing specific types of income or benefits received from an employer. Understanding these codes is important for accurate tax filing. This article aims to clarify one such code, Code C, and its implications.

Meaning of Code C

Code C on a W-2 form represents the taxable cost of group-term life insurance coverage that exceeds $50,000. Group-term life insurance is a common employer-provided benefit, offering employees life insurance coverage, often at a reduced cost or no cost to the employee. While the first $50,000 of such coverage is excluded from an employee’s taxable income, the Internal Revenue Service (IRS) considers the cost of coverage above this $50,000 threshold as a taxable benefit.

This reporting is required because the IRS views the value of this excess coverage as a form of imputed income. Imputed income is not actual cash received by the employee; instead, it is a calculated value of a non-cash benefit that is treated as taxable wages. The taxable value is determined using an IRS Uniform Premium Cost Table, which factors in the employee’s age. This computed value, less any amount the employee paid for the coverage with after-tax dollars, is included in the employee’s gross income.

Locating Code C on Your W-2

Taxpayers can find Code C within Box 12 of their W-2 form. Box 12 is divided into sub-boxes (12a, 12b, 12c, and 12d). These sub-boxes are where various codes, along with their corresponding dollar amounts, are listed.

Code C will appear next to a specific dollar amount in one of these sub-boxes. This amount reflects the calculated taxable cost of the group-term life insurance coverage that exceeds the $50,000 limit. The presence of Code C in this box serves as an informational note for the taxpayer and the IRS regarding this particular benefit.

Tax Treatment of Code C

The amount reported with Code C in Box 12 of a W-2 is already included in total taxable wages. Specifically, this imputed income is included in Box 1 (Wages, tips, other compensation), Box 3 (Social Security wages), and Box 5 (Medicare wages).

A significant distinction for this type of imputed income is its treatment for FICA taxes. While the Code C amount is subject to federal income tax, it is not subject to Social Security and Medicare (FICA) taxes. This means that while you will pay income tax on this benefit, FICA taxes are not withheld or due on this specific portion of your income. Because the amount is already accounted for in Boxes 1, 3, and 5, taxpayers do not need to take any additional steps when preparing their tax return regarding the Code C amount.

Confirming Code C Information

To verify the accuracy of the Code C amount on your W-2, review personal pay stubs or benefit statements from your employer. If further clarification is needed, contacting the employer’s human resources or payroll department can provide detailed explanations or breakdowns of the calculations.

If the Code C amount is incorrect, request a corrected W-2 form (Form W-2c) from your employer. Employers are responsible for issuing accurate W-2 forms and providing corrected forms to the employee and the Social Security Administration (SSA) if an error is found. If an amended W-2c is received after filing a tax return, and it changes the income or withheld tax reported, filing an amended tax return using Form 1040-X may be necessary.