The amount next to Code C in W-2 Box 12 is the taxable cost of the employer-provided group-term life insurance you received above $50,000 of coverage. It’s imputed income, calculated by your employer using an IRS rate table, and it’s already included in your Box 1 wages. For most filers, that means no separate entry on your return and no extra tax to pay beyond what your normal withholding covers.
Why the Amount Shows Up at All
Federal law lets your employer give you up to $50,000 of group-term life insurance tax-free. Anything above that 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 itself. If your employer provides $150,000 of coverage, you are not taxed on the extra $100,000. You are taxed on what that extra $100,000 would cost according to an IRS premium table. For younger employees the number is small; for older ones it can be significant.
How the Code C Figure Is Calculated
Your employer uses Table 2-2 in IRS Publication 15-B. The rate depends 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 of excess coverage 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 math: subtract $50,000 from your total coverage, divide by 1,000, multiply by the monthly rate for your age bracket, then multiply by 12. Anything you paid toward the premium on an after-tax basis reduces the result.
An Example
Say your employer gives you $200,000 of coverage and you’re 47 on December 31. Excess coverage is $150,000, or 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. Your W-2 shows $270 next to Code C. You didn’t receive $270 in cash; it’s imputed income the employer added to your taxable wages on paper.
How Code C Affects Your Taxes
The Code C amount is already rolled into three other W-2 boxes, each for a different tax:
- Box 1 (federal taxable wages): included in full.
- Box 3 (Social Security wages): included, up to the 2026 wage base of $184,500.4Social Security Administration. Contribution and Benefit Base
- Box 5 (Medicare wages): included, with no cap.5Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
No Federal Income Tax Is Withheld on the Imputed Amount
This is the detail that trips people up. Your employer withholds Social Security and Medicare tax on the Code C amount but does not withhold federal income tax on it.5Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 You still owe income tax on it because it’s in Box 1. For small Code C amounts, normal paycheck withholding usually absorbs the difference. For large amounts, common among older employees with generous coverage, you can end up under-withheld. Adjusting your W-4 or making an estimated payment fixes that before filing.
Additional Medicare Tax
If your total wages, including the Code C amount, push you past $200,000 (single) or $250,000 (married filing jointly), the excess is subject to the 0.9% Additional Medicare Tax. Employers withhold that tax on wages over $200,000 regardless of filing status.6Internal Revenue Service. Questions and Answers for the Additional Medicare Tax Imputed life insurance income counts toward the threshold like any other wages.
What You Actually Have to Do at Tax Time
For most employees, nothing extra. When you put your Box 1 wages on Line 1a of Form 1040, the Code C amount is already there.7Internal Revenue Service. Instructions for Form 1040 and 1040-SR (2025) No separate line, no schedule. Tax software carries it in automatically.
Keep the W-2 for at least three years in case the IRS asks how you arrived at your reported wages. Most states follow the federal treatment, but if your state runs its income tax on a different base, check the state instructions for any adjustment.
When Code C Comes with Codes M and N
If a former employer continues to provide more than $50,000 of group-term life insurance after you leave, the imputed income still lands on a W-2 with a Code C entry.8IRS.gov. Group Term Life Insurance Since there’s no paycheck to withhold from, you’ll also see:
- Code M: uncollected Social Security tax on the excess coverage.
- Code N: uncollected Medicare tax on the excess coverage.5Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
You pay those amounts yourself with your Form 1040. This is the one common situation where Code C creates a direct bill at filing time, so retirees with continued coverage should watch for M and N and set money aside.
Retirement or Disability Exception
If you’ve left the employer and either reached the employer’s retirement age or become disabled, the cost of continued group-term coverage is fully excluded from income.9eCFR. 26 CFR 1.79-2 – Exceptions to the Rule of Inclusion Retirement age generally means the earliest age at which you could retire and start immediate pension benefits under the employer’s plan; without a plan, the IRS treats it as 65. When the exception applies, Code C shouldn’t appear on the W-2 at all.
Coverage on a Spouse or Dependent
Coverage of $2,000 or less on a spouse or dependent is a de minimis fringe benefit and generates no taxable income.1Internal Revenue Service. Group-Term Life Insurance Above $2,000, the taxable portion is figured with the same IRS rate table and added to your income. The $50,000 exclusion does not apply here; it only covers insurance on your own life.
Key Employees Under Discriminatory Plans
If the plan favors key employees in eligibility or coverage, those key employees lose the $50,000 exclusion entirely and are taxed on the greater of the IRS table cost or the actual premium cost for the full coverage.10Office of the Law Revision Counsel. 26 USC 79 – Group-Term Life Insurance Purchased for Employees A key employee is generally an officer earning more than $235,000, a 5-percent owner, or a 1-percent owner earning over $150,000. If you’re a company officer or owner and your Code C figure looks unusually high, a discriminatory plan is a likely reason.
If Your Code C Number Looks Wrong
Run the calculation yourself first. Total coverage minus $50,000, divided by 1,000, times the monthly rate for your year-end age, times 12, less any after-tax premium contributions. If the answer doesn’t match Box 12, ask payroll for a corrected W-2 (Form W-2c). The usual culprits are the wrong age bracket or missing credit for after-tax contributions.
If your employer won’t correct it by the end of February, call the IRS at 800-829-1040 to file a W-2 complaint. The IRS will contact the employer and request a corrected form within ten days. You can still file on time by using Form 4852 as a substitute W-2, with figures estimated from your final pay stub.11Internal Revenue Service. W-2 – Additional, Incorrect, Lost, Non-Receipt, Omitted If the corrected W-2 arrives later with different numbers, file Form 1040-X to amend.