Code 125 in Box 14 of your W-2 is the total amount you paid into a Section 125 cafeteria plan on a pre-tax basis during the year. That money has already been subtracted from the taxable wages reported in Box 1, so for federal tax purposes you generally do nothing with it. It sits in Box 14 as a reference figure, mainly so your state return can use it if your state taxes cafeteria plan contributions differently than the IRS does.
What the Number Actually Represents
Section 125 of the Internal Revenue Code lets employers offer a menu of benefits that employees can pay for with pre-tax dollars instead of taking the money as regular wages.1Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans The most common items funded this way are health insurance premiums, health flexible spending accounts, and dependent care accounts.
When you elected any of those benefits, your employer reduced your gross pay by the contribution amount before calculating federal income tax, Social Security tax, and Medicare tax. That’s the whole point of the arrangement: qualifying benefits get paid with dollars that were never taxed. The figure next to Code 125 in Box 14 is simply the sum of those pre-tax deductions across every paycheck for the year.
Do You Need to Report It on Your Federal Return?
No. The pre-tax exclusion already happened at the payroll level, before your employer produced the W-2. Box 1 (federal taxable wages) is already net of the Code 125 amount. Box 3 (Social Security wages) and Box 5 (Medicare wages) typically reflect the reduction as well.2Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans
You can confirm this with a quick check. Take your total annual gross pay from your final pay stub, subtract the Code 125 amount, and compare the result to Box 1. If those numbers line up (allowing for any 401(k) or other pre-tax deductions), the plan was handled correctly and there is nothing to add or subtract on your return.
When you enter your W-2 into tax software, type the Box 14 dollar amount and pick “Section 125” or “Cafeteria Plan” from the category dropdown. The software will treat it as informational and will not add it back to your income.
The State Return Is Where It Can Matter
A few states do not follow the federal pre-tax treatment for cafeteria plans, and that is the practical reason employers report the amount in Box 14 at all. In those states, some or all of your Section 125 contributions get added back to state taxable income even though they stay out of federal income.
New Jersey treats employer contributions to a cafeteria plan as taxable wages for state purposes to the extent the employee could have elected to receive cash instead.3Legal Information Institute (LII) / Cornell Law School. N.J. Admin. Code 12:16-4.15 – Section 125 Cafeteria Plans Pennsylvania splits the difference: health and disability insurance premiums paid through a qualified Section 125 plan are excluded from state-taxable compensation, but dependent care contributions are not.4PA.gov. Pennsylvania Taxation of Cafeteria Plans
If your state does not fully conform to the federal treatment, your state return may require you to add the Box 14 amount, or a portion of it, to your state wages. Tax software usually prompts for this when you select your state. This is the one situation in which the Code 125 figure actually drives a number on your return rather than sitting there for reference.
Other Labels That Mean the Same Thing
Box 14 has no standardized codes. Unlike Box 12, where the IRS assigns specific letter codes, Box 14 is a free-text field, and your employer can label the Section 125 entry however they want.5Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 Common variations include:
- S125 or SEC 125
- CAF or CAFE
- CAFE125 or CAF125
- PRE-TAX (used by some generic payroll systems)
All of these refer to the same thing. If you see an unfamiliar abbreviation next to a dollar amount in Box 14 and it roughly matches your total pre-tax benefit deductions on your final pay stub, it is almost certainly your Section 125 contribution.
What Is Not in This Box
One common mix-up involves Health Savings Accounts. Even if your HSA contributions flow through your employer’s cafeteria plan, they are reported in Box 12 using Code W, not in Box 14.6Internal Revenue Service. Form W-2 Reporting of Employer-Sponsored Health Coverage The distinction matters because HSA contributions require Form 8889 with your return, while a Code 125 entry in Box 14 does not trigger any separate form on its own.
If the Amount Looks Wrong
Start with your pay stubs. Add every pre-tax cafeteria plan deduction across the year and compare that total to the Box 14 Code 125 figure. If they don’t match, contact payroll or HR. Common causes include a mid-year benefit change that was processed incorrectly, contributions from a prior employer being omitted after a job change, or a payroll system that grouped a deduction under Section 125 that shouldn’t have been there.
If your employer confirms an error, they should issue a corrected W-2 using Form W-2c.5Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 A Box 14 mistake that does not affect Boxes 1, 3, or 5 is annoying but harmless for your federal return. A mistake that spills into those boxes, such as the pre-tax amount never actually being excluded from Box 1, changes your tax and needs to be corrected before you file.
The trickier case is when the Section 125 total on your W-2 includes benefits that should not have qualified for pre-tax treatment. If your Box 1 wages look too low compared with gross pay minus Code 125 deductions, or if you’re unsure whether a particular deduction belonged in the cafeteria plan at all, ask your payroll department to walk through the calculation. A tax professional can help determine whether any portion needs to be added back to income before the return goes in.