Which W-2 Box 12 code is associated with deferrals under a nonqualified deferred compensation plan?

The correct response corresponds to Code Y on the W-2. This code is specifically used to report deferrals under a nonqualified deferred compensation plan. Nonqualified deferred compensation plans differ from qualified plans in that they do not have to meet certain IRS requirements and often provide more flexibility in terms of contribution limits and participation. Reporting these deferrals accurately is essential for both the employer and employee, as it provides a clear record of income deferrals that will be taxable upon distribution.

In contrast, other codes refer to different types of deferrals or compensation arrangements. Code V pertains to income from the exercise of nonstatutory stock options, whereas Code Z relates to income recognized from Section 409A nonqualified deferred compensation. Code Q is associated with qualified retirement plans and the associated tax treatment. Each of these codes serves a distinct purpose in tax reporting, highlighting the importance of selecting the right code for accurate tax documentation.