What does W-2 Box 12 Code Y denote?

W-2 Box 12 Code Y specifically denotes deferrals under a nonqualified deferred compensation plan. This is a key component of how certain types of income are reported for tax purposes, especially concerning compensation that may not be subject to taxation in the current year.

Nonqualified deferred compensation plans generally allow employees to defer income to a future date, typically until they retire or leave the company. This can be beneficial for tax planning, as it allows employees to potentially lower their taxable income in the year the income is deferred, leading to tax savings. The use of the specific box and code on the W-2 form helps to ensure that both the employee and the IRS are aware of this deferral, keeping the reporting clear and consistent.

Understanding this code is important for tax preparation and ensures that the employee is aware of any income that may not be taxed immediately, which can help in managing their overall tax liability.