Has any Turbo Tax filer received NYS statement of proposed audit change letters alleging they did not report contributions to 414(h) or IRC 125 for tax years 2016 / 2017?

I received such letter today.  Do you have some experience to resolve such matter?

 

Michael Svoysky

The 414(h) or IRC 125 is reported on your W2 in box 14 under Other. When entering the W2, you must enter that income and may be asked to select the dropdown box that matches. The program then knows to carry that to your NY return to be added into income. It is not included in your federal income.

 

You can look at your NY tax returns for the years in question and see if your Box 14 amount for 414(h) was included in your NY taxable income.

For this year, it is line 21 under New York Additions labelled Public employee 414(h) retirement contributions.

 

If you review your returns and do not see the addition of the income, you would be liable for any additional tax.

 

@msvoysky

Thank you for your answer,

Unfortunately, I do not see in your answer any mention of IRC 125 contribution. I do not see any line in New York Additions labeled IRC 125 (I mean IT-203 Form). 

Another question: why Turbotax software does not take IRC 125 contribution from the W2 form and not reporting the amount to the NY State tax return.

 

Thank you,

msvoysky

Tax Frequently Asked Questions - OPA covers the IRC 125 and its taxability to NY.

Excerpt from link above:

• For Health Insurance Premiums, Dependent Care Assistance Program (DeCAP), and Health Care Flexible Spending Account (HCFSA):
  The amounts for these programs, covered under Section 125 of the IRS code, are reflected in Box 14, IRC125. The amount for DeCAP is shown also in Box 10. They are not subject to federal, Social Security, and Medicare taxes. The reduction in earnings shows on your W-2 but not on your pay statement.
  
  The amount in the IRC 125 Box is subject to New York State and City taxes. The NYS income tax instructions direct the income tax filer to report wages as they appear on the W-2 in Box 1 then to add back the amount to arrive at New York State/City taxable wages.

The program asks you to identify which of the following is correct for your W2:

• NY IRC 125/Sec 18 Subject to NY tax or
• NY IRC 125/Sec 18 tax exempt

@msvoysky

Thank you for your explanation. I have sufficient information regarding the issue for NYS taxation.

As I guess Pennsylvania does not tax IRC-125 and 414H. Am I right?

 

msvoysky

 

 

No.  Pennsylvania (PA) tax law allows only employee contributions to IRC Section 125 cafeteria plans for coverage for hospitalization, sickness, disability or death, supplemental unemployment benefits, or strike benefits as exempt, but only to the extent they are exempt for federal income tax purposes.

 

Employee contributions for other benefits, such as dependent care and contributions to an IRC Section 401 plan, are not excludable from Pennsylvania taxable compensation. If the employer's plan provides life insurance coverage that includes coverage for an employee's dependent child and the employee pays a portion of the premium for that coverage, that portion of the employee's payment is not excludable.  Click here for more information.

 

Before tax contributions to a retirement plan are not tax exempt for PA purposes,  These funds would be included in the gross taxable wages for the PA income tax return. The reason for this is because none of it is taxed when distribution begins. Here is a link to a PA Retirement brochure.