What Is S125 on a W-22?

Some parts of your W-2 form are fairly straightforward, such as the amount of federal income tax withheld and Social Security wages and tax. Other parts are harder to figure out. If you’ve ever wondered "What is S125 on a W-2 form?" you will learn that it refers to your health insurance plan.

The name “Section 125” references that section of the IRS code. A Section 125 health insurance plan is also known as a cafeteria plan, allowing employees to pay certain expenses, such as health insurance, on a pre-tax basis. It also includes flexible spending accounts, and the employee may use the money in the FSA to pay for various medical-related expenses, including transportation to and from healthcare providers or dependent care. However, the IRS has a “use or lose” rule when it comes to FSAs, so the employee must take advantage of these funds annually or lose them. As the IRS puts it, “An FSA cannot provide a cumulative benefit to the employee beyond the plan year.” Qualified benefits under a Section 125 also include group life insurance coverage and adoption assistance. All Section 125 benefits are not subject to the Federal Insurance Contributions Act, Federal Unemployment Trust Fund, Medicare or income tax withholding, with the exception of adoption assistance, which is subject to all of these taxes other than income tax withholding.

The employer must make such plans available to all employees, along with spouses and dependents. Because the employee must agree to contribute part of his salary to the cafeteria plan on a pre-tax basis, the cafeteria plan in effect lowers the salary and thus the gross wages. For example, if you earn $60,000 a year, but you receive $5,000 per year in Section 125 cafeteria benefits, you pay taxes on only $55,000 annually. On the W-2 form, the Section 125 plan appears as “café 125.”

Box 14 on a W-2 is set aside by the IRS for “other” on the form. You will often see “café 125” used as a code on the W-2 in Box 14. Other items that may appear in Box 14 include union dues, educational assistance and certain pension plan contributions. If you use the dependent care option for café 125, the information is not included in Box 14 but in Box 10.