In New York, 414(h) and IRC 125 (NYC flexible benefits) are exempt from federal tax but taxable by New York State. If these amounts aren’t added back to your state income, New York may mark your return as underreported and send you a bill with interest.
This is often caused by a Category Mapping issue on the W-2 screen. Here’s how to fix it so you can e-file without any issues this year.
- Go to your Federal W-2 entry.
- In Box 14, enter your description (e.g., 414H) and the amount.
- The Critical Column: Look to the right of the amount for a dropdown menu labeled "Tax Category" or "Category." 4. Do NOT leave this as "Other" or "Not Classified." You must select exactly
- For 414(h): "NY IRC 414(h) Subject to NY tax"
- For IRC 125: "NY IRC 125/SEC 18 Subject to NY tax"
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