W-2 box 12 code C.

What code C means

IRS description: Code C: Taxable cost of group-term life insurance over $50,000. The employer shows the taxable cost of group-term coverage over $50,000 provided to an employee, including a former employee, and also includes that amount in boxes 1, 3 (up to the social security wage base) and 5.

Employer-paid group-term life insurance up to $50,000 is not taxed. For coverage above that, the employer adds a cost to your wages: the amount of insurance over $50,000, reduced by what you paid toward the insurance. Pub. 15-B says to use Table 2-2 to work out the cost. For employees the employer must withhold social security and Medicare taxes, but not federal income tax.

How the amount is worked out

Table 2-2 gives a cost per $1,000 of protection for one month, based on your age on the last day of the tax year: under 25, $0.05; 25 to 29, $0.06; 30 to 34, $0.08; 35 to 39, $0.09; 40 to 44, $0.10; 45 to 49, $0.15; 50 to 54, $0.23; 55 to 59, $0.43; 60 to 64, $0.66; 65 to 69, $1.27; 70 and older, $2.06. Multiply the monthly cost by the number of months of coverage at that cost, and prorate if less than a full month is involved.

Pub. 15-B's own example: Tom is 45 and has $200,000 of coverage; he pays $100 a year. The $50,000 is taken off, leaving $150,000. The yearly cost is $0.15 x 150 x 12 = $270, less the $100 he pays, so $170 is included in boxes 1, 3 and 5 and shown with code C. The calculator above gives the same answer with the default inputs.

Where it lands on your return

• Box 1: includes the code C amount, so it is taxed as ordinary wages on Form 1040. There is nothing extra to enter.
• Boxes 3 and 5: include it too, which is why the employer withholds social security and Medicare on it.
• Box 2: federal income tax is not withheld on this amount for employees.

Former employees: codes M and N

If the coverage is provided to a former employee, the employer is not required to collect the social security and Medicare tax. The employer reports the uncollected social security tax with code M and the uncollected Medicare tax with code N in box 12, and the former employee pays that tax on Form 1040 or 1040-SR. Uncollected Additional Medicare Tax is not reported with code N.

Limits of the estimate

Pub. 15-B says an S corporation's 2% shareholder is not treated as an employee for this exclusion, and generally the insurance must be provided to at least 10 full-time employees at some point in the year to count as group-term life insurance, with two exceptions. If your result does not match your W-2, the plan may use a different coverage amount during the year, so ask payroll for the coverage history.