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What is S125 on a W-2 Form? When tax season rolls around, decoding your W-2 form can feel overwhelming. One common entry that puzzles many taxpayers is “S125” in Box 14. If you’re wondering, “What is S125 on a W-2 form?” you’re not alone. This code relates to employee benefits and can impact your taxable income in a positive way. In this SEO-optimized article, we’ll break down everything you need to know about S125 on W-2 forms, including its meaning, benefits, and tax implications, using insights from trusted sources like the IRS and tax experts.
Understanding Section 125 Cafeteria Plans
S125 stands for Section 125, which refers to a specific provision in the Internal Revenue Code allowing employers to offer “cafeteria plans.” These plans let employees choose from a menu of benefits and pay for them with pre-tax dollars, effectively reducing their taxable income.
A Section 125 cafeteria plan is essentially a flexible benefits program where workers can allocate a portion of their salary toward qualified expenses before taxes are withheld. Common benefits include:
- Health insurance premiums
- Dental and vision coverage
- Dependent care assistance (up to $5,000 annually, excludable from gross income)
- Flexible Spending Accounts (FSAs) for medical expenses
- Adoption assistance
- Group term life insurance
By participating, employees lower their overall tax burden since these contributions aren’t subject to federal income tax, Social Security, or Medicare taxes. Employers benefit too, as they pay less in payroll taxes on these amounts.
How S125 Appears on Your W-2 Form?
On your W-2, S125 typically shows up in Box 14, labeled “Other.” This box is for informational purposes and reports various items, including pre-tax deductions from cafeteria plans. You might see variations like “S125,” “Cafe 125,” “Sec 125,” or “125FSAMed” (indicating a medical FSA).
The amount listed next to S125 represents your total pre-tax contributions to the plan for the year. Importantly, this figure is already deducted from your taxable wages in Box 1 of the W-2, so it doesn’t require additional adjustments on your tax return. For dependent care benefits exceeding $5,000, any excess may be taxable and reported accordingly.
If your W-2 includes employer-sponsored health coverage under a Section 125 plan, the value might also appear in Box 12 with Code DD, but this is for reporting purposes only and doesn’t make the coverage taxable.
Benefits of Participating in a Section 125 Plan
Enrolling in a Section 125 plan offers several advantages for both employees and employers:
- Tax Savings: Pre-tax deductions can reduce your federal taxable income by thousands, potentially lowering your tax bracket.
- Affordable Benefits: It makes essential coverage like health and dependent care more accessible by stretching your dollars further.
- Flexibility: Employees can tailor benefits to their needs, such as prioritizing medical FSAs or dependent care.
- Employer Attraction: Companies use these plans to attract and retain talent, as they demonstrate a commitment to employee well-being.
However, there are rules: Contributions must be elected at the start of the plan year and can’t be changed mid-year unless a qualifying life event occurs, like marriage, birth of a child, or job change.
Tax Implications and Reporting for S125 on W-2
The primary tax benefit of S125 is that it excludes contributions from your gross income. For example, if you contribute $2,000 to a medical FSA, that amount isn’t included in Box 1 wages, saving you on income taxes.
When filing taxes:
- No need to report S125 amounts separately if they’re properly handled on your W-2.
- Use tax software like TurboTax or consult a professional to ensure accurate entry.
- For dependent care, report benefits in Box 10; excesses over $5,000 become taxable.
Always verify with the latest IRS guidelines, as tax laws can evolve. As of 2026, Section 125 plans remain a key tool for tax-efficient benefits.
Common Questions About S125 on W-2 Forms
What if S125 isn’t on my W-2?
Not all employers report it in Box 14, but if you’re in a cafeteria plan, the pre-tax deduction should still reduce your Box 1 wages.
Is S125 the same as a 401(k)?
No—Section 125 focuses on health and welfare benefits, while 401(k)s are for retirement savings.
Can self-employed individuals use Section 125?
Typically, no; these plans are for employees of qualifying employers.
Conclusion: Maximize Your Benefits with Section 125
Understanding what S125 means on your W-2 form empowers you to make informed decisions about your benefits and taxes. By leveraging a Section 125 cafeteria plan, you can enjoy significant savings on essential expenses. If you have questions about your specific W-2, consult a tax advisor or refer to official IRS resources for the most current information.
For more tax tips, explore related topics like “how to read a W-2 form” or “benefits of pre-tax deductions.” Stay informed and optimize your finances today!