Form W-2, Wage and Tax Statement, is a year-end tax document that employers must file. A W-2 reports wage and salary information and taxes withheld. Employees use information from the Form W2 to complete their federal and state tax returns.
As a small business owner, you are responsible for providing employees with a timely W-2, as well as furnishing a copy to the Internal Revenue Service. Although the concept is simple, a W-2 has many different boxes and codes, and it is important that you understand what you are required to report in each field.
What is Box 12 on a W-2?
Box 12 is a general catch-all for recording various types of income. Box 12 consists of four sections, 12a-12d. These are just references to organize the space and don't have any significant meaning.
W2 Box 12 uses codes A through HH to identify a variety of employee benefits that must be reported to the IRS. Some of these figures are taxable amounts that are also included in total income elsewhere on the W-2, while some represent non-taxable amounts for informational purposes only.
W2 Box 12 codes and explanations
Below is a handy reference guide for what the codes in Box 12 represent. Note that although the codes appear in alphabetical order, some letters are unused and do not appear in the listing. For more detailed explanations, reference the IRS Instructions to Form W-2.
- A and B: This section reports the uncollected Social Security and Medicare taxes employees owe on tip income.
- C: Complete this section when you provide group-term life insurance to your employees and the cost of the policy exceeds $50,000.
- D, E, F, G, H, S, Y, AA, BB, EE: These lines all provide information about elective deferrals to retirement plan contributions, and designated Roth contributions.
- D: Elective deferrals under a section 401(k) plan, including a simple 401(k).
- E: Elective deferrals under a section 403(b) salary reduction agreement.
- F: Elective deferrals under a section 408(k)(6) salary reduction SEP.
- G: Elective deferrals and employer contributions to a 457(b) deferred compensation plan.
- H: Elective deferrals under a 501(c)(18)(D) tax-exempt plan.
- S: Employee contributions under a section 408(p) simple retirement plan.
- Y: Deferrals under a section 409A nonqualified deferred compensation plan.
- AA: Designated Roth contributions under a section 401(k) plan.
- BB: Designated Roth contributions under a section 403(b) plan.
- EE: Designated Roth contributions under governmental section 457(b) plan.
- J: Non-taxable sick pay by a third party that was not includible in income, since the employee contributed to the sick pay plan. Do not include non-taxable disability payments made by a state.
- K: 20% excise tax on golden parachute payments, used primarily to pay executives in publicly traded companies.
- L: Non-taxable employee business expense reimbursement. (Taxable reimbursement is included as income in boxes 1, 3, and 5.)
- M and N: Uncollected Social Security and Medicare tax on life insurance premiums exceeding $50,000. This is for former employees only.
- P: Excludable moving expense reimbursements paid directly to members of the U.S. Armed Forces.
- Q: Nontaxable combat pay.
- R: Employer contributions to an Archer MSA.
- T: Employer-provided adoption benefits.
- V: Income from the exercise of non-statutory stock options.
- W: Employer contributions to a health savings account (HSA).
- Z: Income under a nonqualified deferred compensation plan that fails to satisfy Section 409A.
- DD: Cost of employer-sponsored health care. This amount is non-taxable.
- FF: Permitted benefits under a qualified small employer health reimbursement arrangement.
- GG: Income from qualified equity grants under Section 83(i).
- HH: Aggregate deferrals under Section 83(i) elections as of the close of the calendar year.
Although there are many codes available, keep in mind that most employees won't use the majority of them, if any. The IRS provides detailed instructions, and there are many reputable software programs that can walk you through the intricacies of preparing your W-2s in an accurate and timely fashion.
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