Where Is 414(h) on Your W-2? What to Know

The W-2 form provides a comprehensive summary of an individual’s annual earnings and the taxes withheld from their pay. While many sections of this form are straightforward, specific codes or amounts can sometimes lead to confusion. This article focuses on Section 414(h)(2) contributions, aiming to clarify what they represent and how they impact a taxpayer’s financial reporting.

Understanding Your 414(h)(2) Contribution

A 414(h)(2) contribution refers to pre-tax contributions made by public employees to a governmental retirement plan. This typically includes individuals working for state and local governments, as well as some federal agencies.

The purpose of this Internal Revenue Code (IRC) section is to allow certain employee contributions to be treated as employer contributions for tax purposes. These contributions are deducted from an employee’s gross pay before federal income tax is calculated, effectively deferring federal income tax liability until retirement. However, their handling for state and local income tax purposes can vary significantly by jurisdiction.

Finding 414(h)(2) on Your W-2

Your 414(h)(2) contributions are typically reported in Box 14 of the W-2 form. You might see them labeled as “414(h),” “414(h)(2),” “IRC 414(h),” or similar text.

The amount in Box 1 (Wages, tips, other compensation) of your W-2 is reduced by these contributions for federal income tax purposes. However, these contributions do not reduce the amounts in Box 3 (Social Security wages) or Box 5 (Medicare wages), meaning they remain subject to Social Security and Medicare taxes.

How 414(h)(2) Affects Your Taxes

The primary benefit of 414(h)(2) contributions is their favorable federal income tax treatment. These amounts are excluded from your federal taxable income in Box 1, which directly reduces your current federal income tax liability. This pre-tax treatment allows the funds to grow tax-deferred, meaning you do not pay federal income tax on the contributions or their earnings until they are withdrawn during retirement.

While federally tax-deferred, the treatment of 414(h)(2) contributions for state and local income tax purposes varies by jurisdiction. Many states do not offer the same tax deferral as the federal government, meaning these contributions may be subject to state and local income taxes in the year they are made. Taxpayers should consult their specific state’s tax laws or a tax professional to understand the exact implications. When these funds are eventually withdrawn in retirement, they will be subject to ordinary income tax.

Addressing W-2 Discrepancies

If you believe there is an error on your W-2 form related to 414(h)(2) contributions, contact your employer’s payroll or human resources department. Employers are responsible for issuing corrected W-2 forms if an error is identified. Do not attempt to alter the W-2 yourself.

Your employer should provide a corrected Wage and Tax Statement, known as Form W-2c, which amends inaccuracies on a previously filed W-2. If your employer is unresponsive or unable to provide a corrected form, you can contact the IRS for assistance.