The Codes In Form W2 Box 12
Form W2, also known as the Wage and Tax Statement, is used to report wages and taxes paid to employees. It is an important document for both employers and employees, as it helps ensure the correct taxes are paid to the Internal Revenue Service (IRS). Box 12 of Form W2 contains various codes that employers use to report additional information, such as elective deferrals to retirement plans and the cost of group-term life insurance. In this article, we’ll discuss what these codes mean and how they can affect your taxes.
Code A: Uncollected Social Security or Medicare Tax on Tips
Wondering what to do about uncollected Social Security or Medicare tax on tips? Look no further! On an employee’s W2 form, Box 12 is used to indicate the code A. This code is used to identify the amount of uncollected Social Security or Medicare tax on tips that the employee reported to their employer.
This amount is then reported to the Internal Revenue Service (IRS) by the employer. This code is required if the employee received tips that were not subject to Social Security or Medicare taxes, or if the employee failed to report all tips received. It is important for employers to ensure that the amount reported as Box 12 Code A is accurate as it can impact the amount of Social Security and Medicare taxes the employee pays.
Code B: Uncollected Social Security or Medicare Tax on Wages
If you’re looking for information about uncollected Social Security or Medicare taxes on your wages, you’re in the right place! Letter Code B on Form W2 Box 12 indicates that the employer has not collected any Social Security or Medicare taxes from the employee’s wages.
This means that the employee’s wages were subject to taxation, but the employer did not collect the tax from the employee. This could be due to a variety of reasons, including the employee’s exempt status, a tax treaty, or other reasons. The amount in Box 12B will be reported on the employee’s Form 1040 to calculate the employee’s tax liability. The employee will still be responsible for paying the full amount of tax due on their wages, even if the employer did not collect the tax.
Code C: Taxable Cost of Group-Term Life Insurance Over $50,000
Have you heard of a taxable cost of group-term life insurance over $50,000? Letter Code C can help you figure out how much you owe. If you receive group-term life insurance that exceeds $50,000, the cost of the excess insurance coverage is taxable to you. This means that the cost of the group-term life insurance must be added to your income as wages, and you must pay taxes on it. The amount that is taxable is equal to the excess of the insurance cost over the cost of the first $50,000 of coverage.
The employer is responsible for withholding the required taxes on the taxable cost of the group-term life insurance. The employer must report the taxable cost of the insurance in Box 12 of Form W-2, and must use the letter code C to designate the amount. The employer should also include the taxable cost of the insurance in the total wages reported in Box 1 and Boxes 3 and 5 of Form W-2. The employee should report the taxable cost of the insurance as wages on their tax return.
Code D: Elective Deferrals to a Section 401(k) Cash or Deferred Arrangement
Are you aware of the tax implications of making elective deferrals to a Section 401(k) cash or deferred arrangement? Letter Code D can help you understand how much you owe. Letter Code D on Form W2 Box 12 identifies the amount of elective deferrals made to a Section 401(k) cash or deferred arrangement. This amount is excluded from the employee’s taxable income and is not subject to federal income tax withholding. However, it is subject to social security, Medicare, and FUTA taxes.
Employees can elect to make salary deferrals up to the maximum allowed under the IRS regulations. The amount deferred into a 401(k) is not taxed until it is withdrawn from the account. At that time, the employee is taxed on the amount withdrawn, plus any investment gains that have been earned on the amount deferred. Employers can also make matching contributions to the employee’s 401(k) account, which can also reduce their taxable income.
Code E: Elective Deferrals to a Section 403(b) Salary Reduction Agreement
You can reduce your taxable income by making elective deferrals to a Section 403(b) Salary Reduction Agreement, identified with Letter Code E on your W-2. The salary reduction agreement is an arrangement between an employer and employee. The employer agrees to allocate a portion of the employee’s salary to a retirement plan, such as a 403(b) plan, while the employee agrees to forego the amount of salary being allocated to the plan. This reduced salary is reported on the employee’s W-2 in Box 12 with the letter code E.
The amount of salary reduction reported in Box 12 with the letter code E is not subject to federal income tax withholding, Social Security or Medicare taxes until the employee withdraws the funds. This allows the employee to save additional money for retirement while reducing their taxable income.
The employer may also contribute to the 403(b) plan on behalf of the employee, which is also reported in Box 12 with the letter code E. Withdrawals from a 403(b) plan are generally taxed as ordinary income, and may also be subject to a 10% early withdrawal penalty.
Code F: Elective deferrals under a section 408(k)(6) salary reduction agreement.
Under Section 408(k)(6) of the Internal Revenue Code, employees are allowed to opt out of their salary and instead contribute it to a qualified retirement plan of their choice. This allows employees to save more for retirement than they would be able to with their regular salary alone.
Employees can opt out of their salary and contribute the funds to a variety of retirement plans, including 401(k)s, 403(b)s, or traditional and Roth IRAs. Contributions to a qualified plan under Section 408(k)(6) are considered pre-tax contributions, meaning they are not subject to federal income tax.
This can result in significant tax savings for the employee, as well as help them save more money for retirement. Additionally, employers are also allowed to match certain contributions made under Section 408(k)(6). This further increases the employee’s retirement savings. However, employers are not required to offer matching contributions, so employees should check with their employers to see if they are available.
Code G: Elective deferrals and employer contributions to a 457(b) deferred compensation plan are reported in Box 12 with code G.
Code H: Elective deferrals under a 501(c) tax-exempt plan are reported in Box 12 with code H.
Code S: Employee contributions under a section 408(p) SIMPLE retirement plan are reported in Box 12 with code S.
Code Y: Deferrals under a section 409A nonqualified deferred compensation plan are reported in Box 12 with code Y.
Code AA: Designated Roth contributions under a section 401(k) plan are reported in Box 12 with code AA.
Code BB: Designated Roth contributions under a section 403(b) plan are reported in Box 12 with code BB.
Code EE: Designated Roth contributions under governmental section 457(b) plan are reported in Box 12 with code EE.
Code J: Non-taxable sick pay by a third party that was not includible in income is not reported on Form W-2.
Code K: 20% excise tax on golden parachute payments is reported in Box 12 with code K.
Code L: Non-taxable employee business expense reimbursement is not reported on Form W-2.
Code M and N: Uncollected social security and Medicare tax on life insurance premiums exceeding $50,000 is reported in Box 12 with code N for former employees only.
Code P: Excludable moving expense reimbursements paid directly to members of the U.S. Armed Forces are reported in Box 12 with code P.
Code Q: Nontaxable combat pay is reported in Box 12 with code Q.
Code R: Employer contributions to an Archer MSA are reported in Box 12 with code R.
Code T: Employer-provided adoption benefits are reported in Box 12 with code T.
Code V: Income from the exercise of nonstatutory stock options is reported in Box 12 with code V.
Code W: Employer contributions to a health savings account (HSA) are reported in Box 12 with code W.
Code Z: Income under a nonqualified deferred compensation plan that fails to satisfy Section 409A is reported in Box 12 with code Z.
Code DD: Cost of employer-sponsored health care is reported in Box 12 with code DD.
Code FF: Permitted benefits under a qualified small employer health reimbursement arrangement are reported in Box 12 with code FF.
Code GG: Income from qualified equity grants under Section 83(i) is reported in Box 12 with code GG.
Code HH: Aggregate deferrals under Section 83(i) elections as of the close of the calendar year are reported in Box 12 with code HH.
Frequently Asked Questions
Q1: How does the employer know what codes to use on Form W2 Box 12?
Ans: When it comes to filling out Form W2 Box 12, employers need to know what codes to use. Generally, employers are required to provide the employee’s wages and the federal income tax withheld, along with other deductions and credits that may be applicable. The Internal Revenue Service (IRS) provides a list of codes to help employers determine which code to use. Employers should consult the IRS website for the most up-to-date codes in Form W2 Box 12.
Q2: What other types of employee benefits may be reported in Form W2 Box 12?
Ans: Form W2 Box 12 is an important section for employers to report benefits and compensation provided to their employees. In addition to codes, employers can use this space to report other types of non-cash worker benefits such as group-term life insurance, adoption assistance, tuition reimbursements and dependent care assistance, among others. Employees should be aware of what is being reported in this box since it can affect their filing of taxes.
Q3: How is the cost of group-term life insurance calculated?
Ans: The cost of group-term life insurance is typically calculated by multiplying the employee’s annual salary by a specific rate that is set by the insurance company. This rate is often based on the employee’s age, gender, and health. In addition, the cost of group-term life insurance may also be affected by the number of employees that are covered under the policy. The cost of the insurance is usually split between the employer and employee, and the amount paid by the employee may be deducted from their paycheck.
Q4: What are the tax implications of making elective deferrals to a 401(k) or 403(b) plan?
Ans: Making elective deferrals to a 401(k) or 403(b) plan can provide tax advantages for individuals, as contributions to these plans are not taxed until the money is withdrawn. This means that individuals can save money on their current taxes as well as benefit from tax-deferred growth of their retirement savings. Additionally, employers may also provide a matching contribution to their employees, which can further increase the amount of money saved. It’s important to remember, however, that taxes are still due on withdrawals from these plans, so it’s important to be mindful of the applicable federal and state tax rates when planning for the future.
Ans: When filing Form W2, Box 12 is where uncollected Social Security and Medicare taxes should be reported. Depending on how the taxes were withheld and reported, the codes used in Box 12 can be different. Common codes include A, DD, and EE, but employers may also use other codes to denote specific types of deferrals and deductions. Generally, the codes are accompanied by the amount of uncollected taxes associated with them. It’s important to note that uncollected Social Security and Medicare taxes are only reported if the employer was required to withhold these taxes, but was unable to do so.
In conclusion, there are five codes in Form W2 Box 12, each with a different meaning. Code A is for uncollected Social Security or Medicare Tax on Tips, Code B is for uncollected Social Security or Medicare Tax on Wages, Code C is for Taxable Cost of Group-Term Life Insurance Over $50,000, Code D is for Elective Deferrals to a Section 401(k) Cash or Deferred Arrangement, and Code E is for Elective Deferrals to a Section 403(b) Salary Reduction Agreement. It’s important to understand what each code means in order to accurately complete your taxes. Knowing the codes in Form W2 Box 12 can save you time and money when filing your taxes.