S125 is a code for pre-tax salary reduction contributions to dependent care or health savings accounts
Box S125 on your W2 shows money you chose to have your employer deduct from your paycheck before taxes were calculated. The "S" stands for "statutory," and "125" refers to Section 125 of the Internal Revenue Code, which allows employers to set up cafeteria plans. These are benefit programs where you decide how much to contribute to certain accounts using pre-tax dollars.
The amount in Box S125 is not taxable income. Your employer withheld it, set it aside for your benefits, and did not include it when calculating your federal income tax, Social Security tax, or Medicare tax. This is why the number appears separately — to show the IRS that this money was handled differently from your regular wages.
The most common reasons Box S125 appears on your W2 are contributions to a Dependent Care Flexible Spending Account (FSA), a Health Savings Account (HSA), or a Health Care FSA. Some employers also use it for other pre-tax benefits like transit passes or parking.
Key Takeaways
- Box S125 shows pre-tax money you directed to a cafeteria plan benefit account, which reduces your taxable income for the year.
- This amount is already excluded from your federal, Social Security, and Medicare taxes, so you do not report it again on your tax return.
- Common S125 contributions include dependent care FSA, health care FSA, and health savings account (HSA) deferrals.
- If the amount in Box S125 does not match what you remember contributing, contact your employer's payroll or benefits department to verify.
How S125 affects your taxes
Because the money in Box S125 was deducted before taxes, it lowers your taxable wages for the year. Your employer already removed it from the income reported in Box 1 (your federal wages) on the W2. You do not subtract it again when you file your tax return — it is already gone from the taxable amount.
This is different from deductions you claim on your tax return, like mortgage interest or charitable donations. Those you report on Schedule A or another form. Box S125 money never appears on your return because it was handled at the paycheck level, not at tax time.
If you contributed to an HSA, you may also see Box 12 with code W, which reports HSA contributions. Box S125 and Box 12-W can both appear on the same W2 if your employer made contributions on your behalf or if you had both types of accounts.
Common reasons Box S125 appears on your W2
Dependent Care FSA: You set aside pre-tax money to pay for childcare, adult day care, or summer camp for a dependent. You can contribute up to $5,000 per year (or $2,500 if married filing separately). You submit receipts to your employer or plan administrator and get reimbursed from your FSA account.
Health Care FSA: You set aside pre-tax money for medical expenses not covered by your health insurance — copays, deductibles, dental work, vision care, or over-the-counter medications. The annual limit varies by employer plan but is typically $3,200 to $3,300. Like the dependent care FSA, you submit receipts for reimbursement.
Health Savings Account (HSA): If you have a high-deductible health plan, you can contribute to an HSA and use the money for medical expenses. Unlike an FSA, unused money rolls over year to year and grows like a retirement account. The 2024 contribution limit is $4,150 for individual coverage or $8,300 for family coverage, though this amount changes annually.
What to do if Box S125 looks wrong
Start by checking your own records. Look at your pay stubs from throughout the year and add up what you actually contributed to each account. Compare that total to the amount shown in Box S125. If they match, the W2 is correct.
If the numbers do not match, contact your employer's payroll or benefits department. Bring a copy of your pay stubs and ask them to review the calculation. Common errors include contributions from only part of the year being reported, or contributions to multiple accounts being combined under one code. If your employer made a mistake, they will issue a corrected W2 (Form W2-c). This can take several weeks, so do not file your tax return until you have the corrected form if the amount is significantly different.
If you already filed and the W2 was wrong, you can file an amended return (Form 1040-X) once you receive the corrected W2. Keep copies of all correspondence with your employer about the error in case the IRS has questions about the discrepancy.
S125 versus other W2 codes for benefits
| Box and Code | What It Means | Pre-Tax? |
|---|---|---|
| Box S125 | Section 125 cafeteria plan contributions (FSA, HSA, dependent care) | Yes |
| Box 12, Code W | HSA contributions made by you or your employer | Yes |
| Box 12, Code D | 401(k) or 403(b) retirement plan contributions | Yes |
| Box 12, Code DD | Health insurance cost information (informational only) | No |
| Box 14 | Other income or deductions (varies by employer) | Varies |
Box S125 is specific to cafeteria plan benefits. If you see other codes in Box 12, they refer to different types of pre-tax or employer-provided benefits. Your W2 may show multiple codes if you participated in more than one program during the year.
The key difference between S125 and Code W is that S125 covers all cafeteria plan benefits, while Code W is used only for HSA contributions. Some employers report HSA contributions in both places, which is normal and not an error.
Frequently Asked Questions
Do I report Box S125 on my tax return?
No. Box S125 money is already excluded from your taxable income in Box 1. You do not report it anywhere on your return. The IRS already knows about it from the W2 your employer filed.
Can I deduct Box S125 on my taxes?
No. You cannot deduct it because it was never included in your taxable income to begin with. The tax benefit happened when your paycheck was calculated, not when you file your return.
What happens to unused FSA money at the end of the year?
Most FSA plans have a "use it or lose it" rule — unused money does not roll over and you forfeit it. Some plans offer a grace period of up to 2.5 months into the next year, or a carryover of up to $640 (amount varies by plan). HSA money always rolls over and never expires.
Why is my Box S125 amount different from what I thought I contributed?
The most common reason is that you changed your contribution amount during the year, or you started or stopped contributing partway through. Your employer reports only what was actually deducted, not what you intended to contribute. Check your pay stubs to confirm the actual amounts.
If I leave my job, what happens to my S125 account?
FSA money is tied to your employer's plan and you typically lose access when you leave. HSA money belongs to you and moves with you — you can keep contributing and using it at any employer or on your own. Check your plan documents or ask your benefits administrator about the exact rules for your accounts.