Code C in Box 12 of your W-2 is the taxable cost of employer-provided group-term life insurance on coverage above $50,000. The dollar figure next to the letter C is “imputed income”: your employer used an IRS rate table to value the extra coverage and added that value to your taxable wages. It’s already folded into your Box 1 wages, so in most cases you don’t do anything extra when you file. The reason to understand it is to check that the number is right and to catch the few situations where it costs you money directly.
What the Dollar Amount Actually Represents
Federal law lets your employer give you up to $50,000 of group-term life insurance tax-free. Anything above that line becomes a taxable fringe benefit.1Internal Revenue Service. Group-Term Life Insurance
What gets taxed is the cost of the excess coverage, not the coverage amount itself. If your policy is $150,000, the IRS is not treating $100,000 as income. It’s treating the imputed premium on that extra $100,000 as income, and for most employees under 50 that premium is small.
How Your Employer Figured the Number
Employers use Table 2-2 in IRS Publication 15-B, which sets a monthly cost per $1,000 of excess coverage based on your age on the last day of the tax year.2eCFR. 26 CFR 1.79-3 – Determination of Amount Equal to Cost of Group-Term Life Insurance The 2026 monthly rates per $1,000 are:
- Under 25: $0.05
- 25–29: $0.06
- 30–34: $0.08
- 35–39: $0.09
- 40–44: $0.10
- 45–49: $0.15
- 50–54: $0.23
- 55–59: $0.43
- 60–64: $0.66
- 65–69: $1.27
- 70 and older: $2.06
The formula: take your total coverage, subtract $50,000, divide by 1,000 (rounded to the nearest tenth), multiply by your monthly rate, then multiply by 12. Any after-tax premium you paid in reduces the final number.
A worked example. Say you have $200,000 of coverage and you turn 47 by December 31. The excess is $150,000, which is 150 units of $1,000. At the 45–49 rate of $0.15 per month, that’s $22.50 a month, or $270 for the year. Box 12 Code C would show $270.
The rate curve matters more as you age. The same $150,000 of excess coverage for a 65-year-old produces $2,286 in imputed income for the year ($1.27 × 150 × 12). Older employees with large employer policies often see the number climb fast.
How Code C Affects Your Taxes
The amount next to Code C has already been added into three other boxes on your W-2, each doing a different tax job:4Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
- Box 1, where it increases your federally taxable wages.
- Box 3, where it counts toward Social Security wages up to the 2026 wage base of $184,500.5Social Security Administration. Contribution and Benefit Base
- Box 5, where it counts toward Medicare wages with no cap.
No Federal Income Tax Withheld on This Piece
Your employer withholds Social Security and Medicare tax on the imputed income but does not withhold federal income tax on it.4Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 You still owe income tax on it because it sits inside Box 1. For most people with modest Code C figures, routine withholding on actual paychecks absorbs the difference. If your Code C amount is large, which is common for older employees with high coverage, you can end up slightly under-withheld. Adjusting your W-4 or sending in an estimated payment heads off a bill at filing.
Additional Medicare Tax
Once your wages pass $200,000 for single filers or $250,000 for joint filers, the excess is hit with the 0.9% Additional Medicare Tax. Employers withhold it once your wages cross $200,000, regardless of your filing status.6Internal Revenue Service. Questions and Answers for the Additional Medicare Tax Code C imputed income counts toward that threshold like any other wages.
What You Actually Do at Tax Time
For most filers, nothing extra. When you enter your W-2 on Line 1a of Form 1040, the Code C amount is already baked into the Box 1 figure you report.7Internal Revenue Service. Instructions for Form 1040 and 1040-SR (2025) No separate line, no attachment. Tax software carries the number through automatically.
Keep the W-2 for at least three years, the standard audit window. States mostly follow the federal treatment, but if your state’s income tax rules are unusual, check the state instructions for any adjustment on fringe benefits.
When Code C Does Cost You Money Directly
There is one setting where Code C triggers an out-of-pocket amount at filing: a former employer continuing your group-term coverage above $50,000 after you leave. The imputed income still appears in Box 1 and in Box 12 with Code C, but because there’s no paycheck to withhold from, you’ll also see:9Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
You pay those uncollected amounts yourself on your Form 1040.8IRS.gov. Group Term Life Insurance If you’re retired and still carrying employer-provided coverage, watch for Codes M and N and plan for the payment.
Retirement and Disability Exception
If you’ve left the employer and either reached the employer’s retirement age or become disabled, the cost of the group-term coverage is fully excluded from income.10eCFR. 26 CFR 1.79-2 – Exceptions to the Rule of Inclusion Retirement age generally means the earliest age at which you could draw immediate benefits under the employer’s pension plan; if there’s no plan, the IRS treats it as 65. When this exception applies, Code C should not appear on your W-2 at all.
Key Employees and Discriminatory Plans
If the plan favors key employees in eligibility or coverage, those key employees lose the $50,000 exclusion and are taxed on the greater of the IRS table cost or the actual premium cost for the full coverage amount.11Office of the Law Revision Counsel. 26 USC 79 – Group-Term Life Insurance Purchased for Employees A key employee here is generally an officer earning more than $235,000, a 5-percent owner, or a 1-percent owner earning over $150,000. Rank-and-file employees aren’t affected. If you’re an officer or owner and your Code C number looks unusually high, this rule is a likely explanation.
If Your Code C Amount Looks Wrong
Run the math. Take your total coverage, subtract $50,000, pull the rate from the table for your age bracket, multiply by 12. If the figure doesn’t match Box 12, ask payroll or HR for a corrected W-2 (Form W-2c). The usual mistakes are the wrong age bracket or failing to credit after-tax premium contributions.
If your employer won’t issue a correction by the end of February, you can call the IRS at 800-829-1040 to file a formal W-2 complaint. The IRS will contact the employer and request a corrected form within ten days. You can file in the meantime using Form 4852 as a substitute W-2, estimating the correct figures from your final pay stub.12Internal Revenue Service. W-2 – Additional, Incorrect, Lost, Non-Receipt, Omitted If the corrected W-2 arrives later with different numbers, file an amended return on Form 1040-X.