Generally, your deferred compensation isn't subject to income tax withholding at the time of deferral, and you don't report it as wages on your tax return, because it isn't included in box 1 wages on your Form W-2. However, it should be included as wages subject to withholding for social security and Medicare taxes.
In general, a Code "Y", in Box 12 would be for a nonqualified deferred compensation plan contribution.
The instructions for Form W-2 Box 12, Code Y state:
Code Y—Deferrals under a section 409A nonqualified deferred compensation plan.
It is not necessary to show deferrals in box 12 with code Y. For more information, see Notice 2008-115. However, if you report these deferrals, show current year deferrals, including earnings during the year on current year and prior year deferrals. See Nonqualified deferred compensation plans under Special Reporting Situations for Form W-2.
Nonqualified deferred compensation plans.
Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. Generally, section 409A is effective with respect to amounts deferred in tax years beginning after December 31, 2004, but deferrals made before that year may be subject to section 409A under some circumstances.
It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. If you report section 409A deferrals, show the amount in box 12 using code Y.
Click here for Form W-2 instructions, under Nonqualified deferred compensation plans.
If you believe your W-2 is incorrect you should ask your employer about it before entering it.
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