The S125 line in Box 14 of your W-2 is your employer’s way of showing how much of your pay went through a Section 125 cafeteria plan on a pre-tax basis during the year. Health premiums, dental and vision coverage, and money you set aside in a healthcare or dependent care FSA all get pulled together into that single figure. Your employer already subtracted it from the taxable wages reported in Box 1, so for the vast majority of federal filers, the S125 amount is informational and does not go anywhere on Form 1040.
What the S125 Amount Actually Covers
The “125” points to Section 125 of the Internal Revenue Code, which authorizes cafeteria plans. A cafeteria plan is a written employer benefit program that lets you choose between taking cash (your regular taxable wages) or directing part of your pay toward qualified benefits without paying tax on those dollars first.1Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans The dollar figure next to the S125 label is the total of every pre-tax contribution you made through the plan over the tax year.
If you paid $350 a month for health insurance premiums and put $150 a month into a health FSA, your S125 total would be $6,000. Employers typically don’t break the number into its parts on the W-2 itself. Common items rolled into it include employer-sponsored health, dental, and vision premiums, healthcare flexible spending account contributions, and dependent care FSA contributions.1Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans Long-term care insurance and health plans purchased through the ACA marketplace are specifically excluded from qualifying.
One thing worth knowing: S125 is not an official IRS code. Box 14 is a catch-all area, and the IRS lets employers use their own labels there.2Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 Depending on the payroll system, the same information might appear as “S125,” “Sec 125,” “Cafe 125,” or something else. The IRS doesn’t even require employers to report the total here; many do it voluntarily so employees can see how much pre-tax money moved through benefits.
How the Number Was Already Handled on Your W-2
Section 125 contributions come out of your paycheck through a salary reduction agreement, which means the IRS treats the money as though you never received it. It is not counted as wages for federal income tax, Social Security tax (FICA), or federal unemployment tax (FUTA).3Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans The FICA exclusion is written into the statutory definition of wages, which carves out cafeteria plan payments that wouldn’t otherwise be treated as wages.4Office of the Law Revision Counsel. 26 USC 3121 – Definitions
Practically, that means your S125 amount has already been excluded from three places on your W-2:
- Box 1, federal taxable wages
- Box 3, Social Security wages
- Box 5, Medicare wages
This triple exclusion is what makes cafeteria plans valuable compared to after-tax deductions. A worker in the 22% federal bracket who contributes $5,000 pre-tax saves roughly $1,100 in federal income tax; adding the 7.65% Social Security and Medicare savings brings the total to about $1,480.
You can spot-check the math yourself. Take your gross pay for the year and subtract the S125 total along with any other pre-tax deductions like traditional 401(k) contributions. The result should be close to Box 1. If the numbers don’t line up, call your payroll department before you file. A mismatch often points to a reporting error, and catching it early is easier than fixing it after the return is submitted.
What to Do With S125 on Your Federal Return
Nothing, in most cases. Because the exclusion already happened at the payroll level, entering the S125 amount as a deduction on Form 1040 would be double-counting. When tax software prompts you to categorize the Box 14 entry, choose “Other” or “Not applicable,” depending on how the program lists its options.
There is one scenario where the S125 amount can matter federally. If your dependent care FSA contributions ran over the annual limit, the excess should have been added back to Box 1 wages by your employer. If it wasn’t, you have to report the overage as income. This is uncommon, but it can happen when you and a spouse both contribute to dependent care FSAs through separate employers and don’t coordinate elections. Check the total against the household limit if that describes your situation.
When S125 Matters for Your State Return
A few states don’t follow the federal exclusion for Section 125 contributions. In those states, some or all of your cafeteria plan deductions get added back to state taxable income even though they stay excluded federally. New Jersey is the most prominent example and treats most Section 125 contributions as taxable wages for state income tax purposes. Other states carve out narrower exceptions, such as taxing dependent care FSA contributions while still exempting health premiums.
If you live somewhere with an add-back rule, the S125 amount is genuinely useful at tax time rather than purely informational. You’ll need it to calculate the adjustment to your state wages. Your state’s tax instructions will spell out exactly which types of Section 125 contributions get added back, and a local preparer can confirm the treatment for your specific plan. The Box 14 figure gives you the starting number.
How S125 Differs From Box 12 Codes DD and W
Box 14 and Box 12 both carry benefit information, and two Box 12 codes overlap enough with Section 125 to cause confusion.
Code DD in Box 12 reports the total cost of employer-sponsored health coverage, combining both the employer’s share and your share. It is an informational figure required by the Affordable Care Act and is not taxable. The Code DD amount will typically be larger than your S125 amount because it includes what your employer paid on your behalf.5Internal Revenue Service. Reporting Employer-Provided Health Coverage on Form W-2
Code W in Box 12 reports employer and employee contributions to a Health Savings Account. Even when HSA contributions run through a Section 125 plan, they show up under Code W rather than in the S125 total.6Internal Revenue Service. Form W-2 Reporting of Employer-Sponsored Health Coverage So if you had an HSA and also paid pre-tax premiums, the HSA money is in Box 12 Code W and the premiums are in the S125 line. They don’t overlap.
If Part of Your S125 Was FSA Money, Watch the Deadline
The healthcare FSA piece of your S125 total carries a forfeiture rule the W-2 won’t remind you about. Money left in a health FSA at the end of the plan year is lost unless your employer built in one of two safety valves.7Internal Revenue Service. Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements The first is a grace period of up to two and a half months after the plan year ends during which you can still spend leftover funds on eligible expenses. The second is a carryover, which for 2026 lets you roll up to $680 of unused funds into the next plan year.8FSAFEDS. New 2026 Maximum Limit Updates An employer can offer one option or the other, but not both. Some offer neither, in which case every unspent dollar is forfeited.
The 2026 healthcare FSA employee contribution cap is $3,400, and the dependent care FSA cap is $7,500 per household ($3,750 if married filing separately).8FSAFEDS. New 2026 Maximum Limit Updates Health insurance premiums paid through the plan don’t have a separate IRS dollar cap; the limit is simply the cost of the coverage your employer offers. That’s why a high S125 total usually reflects premiums plus FSA elections rolled together rather than any single item hitting a ceiling.