Form W-2 Box 12 Code G Medicare Wages And Tips Nontaxable Employee Compensation (Fringe Benefits)

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Nontaxable Employee Compensation (Fringe Benefits)

Many fringe benefits you receive from your employer are tax-free or tax-deferred, and are specifically excluded from your taxable income by the tax law. Therefore, a tax-free benefit is never included in your gross income, and you never pay tax on it. Tax-free benefits include the following:

  • Health care benefits, and the cost of group life insurance coverage of up to $50,000.
  • Cafeteria plans.
  • Dependent care assistance of up to $5,000.
  • Adoption assistance is up to $13,360.
  • Stock options.

A tax-deferred fringe benefit is not included in your gross income in the year you receive it, and therefore, it is not taxable until later years. A tax-deferred fringe benefit usually includes your employer’s contribution to a qualified retirement plan, and also your contributions to a retirement plan under a qualified deferred compensation plan set up by your employer, such as a 401(k) plan. With a qualified deferred compensation plan, the following should be noted:

  • Your contributions to that plan are shown in box 12 of Form W-2, with the code letter D.
  • You pay Social Security and Medicare taxes on the deferred payments in the year you receive them, but not income taxes.
  • The Social Security and Medicare wages shown in boxes 3 and 5 of your Form W-2 are different from the amount shown in box 1.
  • Retirement plan distributions are taxed in the year you take them out of your retirement plan.

Some other fringe benefits are specifically exempt from tax. These include the following:

  • No extra cost service: This is where your employer provides you with a service that is offered for sale to customers, and does not require significant additional costs to provide you with the service.
  • Eligible employee discount: Here your employer allows you to buy property or services at a discount, and the discount does not exceed a percentage of the profit, or does not exceed 20% of the price offered to customers.
  • De minimis (minimal) benefit: This is a fringe benefit whose value is so small that it is impractical for your employer to account for it (for example, personal use of your employer’s copy machine, tickets to theater or sporting events, Thanksgiving turkey , etc.)
  • A qualified transportation fringe: This includes: (1) Transportation in a commuter highway vehicle between your home and work (up to $230 per month is excluded from income). (2) One transit pass (up to $230 per month excluded from income). (3) Qualified parking (up to $230 per month excluded from income). (4) Qualified bicycle travel expenses (up to $20 per month excluded from income).
  • Eligible moving expense reimbursement: Your employer must exclude from your income any reimbursement for qualified moving expenses.
  • Athletic facilities: Your employer must not exclude from your income the value of an on-site athletic facility, as long as it is not for public use, and generally all use is by employees, their spouses, and their dependent children.
  • Achievement awards: Your employer must exclude from your income the amount of awards earned up to $1,600 ($400 for awards that are not “qualified plan awards”).

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