Taxes are complicated and filing them can get really confusing. What makes it worse is that sometimes there are boxes on the W2s that don’t really need to be used at all. When you’re doing taxes, the last thing you want is to spend forever figuring out the intricacies of tax codes.
The IRS is very detailed on their site, but unfortunately, the tax code is massive and finding the one thing you’re looking for can take hours. Once you do, it is so couched in legal jargon that you may not even understand what it’s telling you!
This article can help fix that for you. One of the biggest mysteries on your W2 is the Box 12 code. Let’s take a look at what the different codes are. This determines whether your amount is income or not. The good news is that if you’re just curious about gross income, that’s already included in Box 1.
Box 12 Codes
Here are the different codes for Box 12 and what each one refers to. Hopefully, it helps you understand your situation better when you begin to file your taxes.
If there is an A in your box 12 on the W2, this means that you have some social security and RRTA taxes on your tips that haven’t been collected yet.
You will need to include this tax when you file your Form 1040 Schedule 4. You should find a spot for this on Line 58.
If your box is a B, then it means that you have some Medicare tax on your tips that have not been collected yet.
This will be on the same form and line as code A. That is to say, you will include this on Form 1040 Schedule 4 under Line 58.
This letter indicates that you owe taxes on group-term life insurance that are over $50,000.
This will need to be included in the W2 boxes 1 and 3, pertaining to the Social Security wages base, ad also in Box 5.
This letter deals with 401(k) arrangements. If your W2 has this code, then it means you’ve taken an elective deferral under a 401(k) cash or arrangement plan. These will include a simple 401(k) arrangement.
You will need to make sure that your 401(k) has the right allocation. It will need to be diversified the right way and make sure you don’t pay too much in fees. There are 401(k) analysis forms available to help with this.
This code handles elective salary reduction agreements. This is an elected deferral under Section 403(b). This is a different form of elective retirement plan.
This letter designates voluntary salary reduction SEPs under the 408(k)(6) salary reductions. These are SEP IRA (Simplified Employee Pension Individual Retirement Account) plans.
This is typically used for small business owners and self-employed people.
This code is a Section 457(b) deferred compensation plan. It handles elective deferrals and employer contributions (that also cover non-elective deferrals).
In other words, this code handles contributions that you and your employer have made to a 475(b) retirement plan.
This section handles elective deferrals that are covered under Section 501(c)(18)(D) plans from organizations that are exempt from paying taxes.
Whatever you contribute to a tax-exempt plan will be covered here.
This covers any sick pay. Your sick pay is not taxable. This is only for informational purposes and won’t be included in Boxes 1, 3, or 5 on your W2.
This is an excise tax of 20% for any excess golden parachute payments. These payments are agreed upon between a company and an employee. At the end of the employment period agreed upon, employees will receive significant benefits, including cash bonuses, stock options, severance pay in unusually high amounts, and other benefits. Keep in mind stock options are different from paying taxes on public stocks.
This covers the business expenses that are reimbursed. These are not taxed as part of your income because they are only replacing what was spent out of pocket for a business. These are substantiated employee business expense reimbursements.
This code indicates that you have uncollected Social Security or RRTA tax on the taxable cost of group-term life insurance in excess of over $50,000, but unlike the other code, this one is specifically for former employees only. It handles the premium value of taxable insurance.
This is similar to M and the already mentioned earlier codes.
It’s the uncollected Medicare tax designation on the premiums from a group-term life insurance policy over $50,000 for former employees only.
This code designates that there are exemptions and exclusions for moving expense reimbursements for members of the US Armed Forces.
These are the reimbursements paid directly to service members after a move that are not included in Boxes 1, 3, and 5.
This is a special rate of combat pay that is not taxed. Forms 1040 and 1040A both have instructions regarding how to report this amount of pay.
You can still use this to help calculate your Earned Income Credit if it will help you with that calculation.
This code is pretty rare these days. It handles contributions to an Archer Medical Savings Account (or MSA).
You report this on Form 8853: Archer MSAs and Long Term Care Insurance Contracts.
This covers Section 408(p) SIMPLE (Savings Incentive Match Plan for Employees Individual Retirement Account) and is not included in Box 1.
It pertains to employee salary reduction contributions.
Letter T on a Box 12 is for adoption benefits. It’s not included in Box 1.
Use this with Form 8839: Qualified Adoption Expenses. This will help you compute the taxable and nontaxable amounts. These are the benefits you receive from your employer.
This code is for non-statutory stock options.
The exercise of these options is included in Boxes 1 and 3 (up to the Social Security wage base) and also Box 5. Check out Publication 525, Taxable and Nontaxable Income, to learn the requirements for reporting.
This handles employer contributions to your health savings account (HAS). It includes the amount that an employee has elected to contribute using a Section 125 cafeteria plan. You will need to report this on Form 8889.
This code designates deferrals under the Section 409A nonqualified deferred compensation plan.
This plan is compensation that is paid to a service provider by a service recipient. Generally, a 20% excise tax is applied when rules are violated.
This covers income under a nonqualified deferred compensation plan that won’t qualify for Section 409A.
It is included in Box 1 and subject to the additional 20% tax plus interest. These instructions can be found on Form 1040.
This section is a designated Roth contribution for anyone who has a 401(k) plan.
This plan is an alternative to the traditional 401(k) plan which borrows the convenient aspects of traditional 401(k)s with the more beneficial tax structure of Roth IRAs.
This is for designated Roth contributions under a 403(b) plan.
This retirement plan is usually reserved for employees of public schools, ministers, and other tax-exempt organizations.
You usually won’t have to worry about Code CC> This code is for employers only.
This code is used to cover the cost of health coverage that your employer sponsors. This is not a taxable amount of money.
This amount is for designated Roth contributions under a governmental 457(b) plan.
It won’t apply to any contributions made under a tax-exempt organization Section 457(b) plan. These plans are offered to local and state governmental employees like firefighters, police officers, and other civil servants.
This handles the permitted benefits offered under a qualified small employer health reimbursement arrangement.
This code handles any income from qualified equity grants under section 83(i).
This section permits some qualifying private corporations to adopt qualified equity grant plans to issue stock options or restricted stock units (RSUs) to eligible employees so they can obtain qualified stock in exchange for services.
This code refers to the aggregated deferrals collected under section 83(i) elections.
It is calculated based on the close of the calendar year.
How to Fill Out Box 12 on a W2
When an employer gives you a W2, it will have Boxes 12a through 12d.
Any amount that is on a Box 12 line will also require an upper-case letter conde form the list above. If the box doesn’t have any of these codes, you don’t have to fill anything out. Simply move to Box 13.
If you have some information, then you will need to fill it out carefully.
Find the correct capital letter code from a drop down list and enter the correct amount if you’re using software. If you need to add multiple Box 12 amounts, then you will need to add additional rows. If you have a code that requires special forms, there will be instructions on the form indicated in the code.