Does anyone else have an issue with Box 12a selection E - 403b salary reduction contribution being counted as taxable income? This shows we owe tax on non-taxable income

[DanielV01]

What state do you live in?

[SweetieJean]

Is it included in the Box 1 amount?

[michael-ravenscr]

We live in Maryland. I'm inclined to think it's a bug in the software because last year I had this same issue (our tax bill was way high for seemingly no reason--income didn't change, no job change, no family change, etc.--and it was just recategorizing the line item from "A" to "E". I did the same thing this year and for some reason it's not applying the change--it's categorizing the income set aside as income we didn't pay federal taxes on. :(

[michael-ravenscr]

Box 1 shows her income adjusted for the 403b amount removed. Box 3 and 5 show her income with Box E included...it might be an error on the W2, but basically, her taxable income is correct in Box 1.

[SweetieJean · Accepted solution]

Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's Social Security and Medicare wages, if the payments are made because of a salary reduction agreement. 

https://www.irs.gov/pub/irs-pdf/p15a.pdf