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Level 2

Should PreTax Health Insurance Premiums be included in Local Wages [box 18] on W2

My son works at a KFC in Lake County, IN.  I do his taxes, as I've done mine & my husband's [through TurboTax] for over 30 years + mine before that time + worked in HR/ Payroll etc. dept. for a business for 14 years. 

Once our County had adopted the County Tax, these PreTax Health Insurance Premiums were deducted before taxes were calculated for payroll, as well as deducted from Local Wages [Box 18] on W2's at the business where I worked... including tax year 2020 [my husband still works at that business.]

Now my son is working and he has his own insurance through his work, he has his portion of the PreTax Health Insurance Premiums withheld bi-weekly from his paychecks, but the company that does payroll for KFC is including his PreTax Health Insurance Premiums in Local Wages [Box 18] on his W2, plus, I believe those premiums are not being deducted before taxed [Local/County] on his paychecks. 

I spoke with our CPA [one I consulted with when I worked at the previously mentioned business] and she said those pretax premiums should NOT be included in Local Wages on the W2. 

I then spoke with the department that does the payroll for my son at KFC and they said that it SHOULD BE included with the Local Wages on the W2.

So, should PreTax Health Insurance Premiums be deducted before calculating Local/County Taxes on Paychecks and also NOT included in Box 18 on W2, or are these premiums taxable [local/county] on paychecks and are to be included in Box 18 of W2?

Circular, Bulletin, Publication where I can confirm answer [either way] and send to son's HR/Payroll Dept. [if applicable.]

Thanks in advance.

 

1 Best answer

Accepted Solutions
Employee Tax Expert

Should PreTax Health Insurance Premiums be included in Local Wages [box 18] on W2

Indiana counties do not tax pre-tax items, so I think the CPA (especially if she/she is an Indiana CPA) is correct.

 

Note that Kentucky localities, however, do tax such items. Is it possible that the payroll processer is confusing the rules in the two neighboring states?

 

Sorry, I do not have an exact citation, but got this from a coworker who is a credential tax professional who lives in Kentucky and does Indiana tax returns frequently.

 

Look at this Indiana link. Notice that the tax is levied on "wages". but it is normal that wages, as reported on the federal return and passed down to the state, do not contain these pre-tax amounts.

 

Also notice the telephone number at the bottom of the page, in case you want to follow up.

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2 Replies
Employee Tax Expert

Should PreTax Health Insurance Premiums be included in Local Wages [box 18] on W2

Indiana counties do not tax pre-tax items, so I think the CPA (especially if she/she is an Indiana CPA) is correct.

 

Note that Kentucky localities, however, do tax such items. Is it possible that the payroll processer is confusing the rules in the two neighboring states?

 

Sorry, I do not have an exact citation, but got this from a coworker who is a credential tax professional who lives in Kentucky and does Indiana tax returns frequently.

 

Look at this Indiana link. Notice that the tax is levied on "wages". but it is normal that wages, as reported on the federal return and passed down to the state, do not contain these pre-tax amounts.

 

Also notice the telephone number at the bottom of the page, in case you want to follow up.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

Level 2

Should PreTax Health Insurance Premiums be included in Local Wages [box 18] on W2

Thank you so much for your reply / help.  It is greatly appreciated!

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