Are the pretax employee paid health insurance premium contributions subject to NY state taxes?

[1d6594e419ad]

It's easy to find that this contribution is not federally taxable, but I have found conflicting information as to if it is taxable for NY state.  Employment is with a private employer, not city or state of NY.  

[BillM223]

New York, like many states, starts with the federal income and deduction numbers, then adds and subtracts a few things to arrive at NY income.

In terms of your specific question, the NY Instructions for IT-201 state "The amount entered on line 1 (wages, salaries, tips, etc.) should be the same as the amount reported on federal Form 1040, line 1z." So at the beginning, at least, the health insurance premiums are deductible in NYS.

Now, we have to examine whether or not these premiums get added back to NY income on form IT-225 (Additions). Sure enough, the form IT-225 Instructions state: 

"A-101: New York City flexible benefits program (IRC 125)

If any federal Form W-2 wage and tax statement shows that an amount was deducted or deferred from your salary under a flexible benefits program established by New York City or certain other New York City public employers on your or a decedent’s behalf, then enter that amount."

So, as it sounds like you already know, only certain health premiums of public entities are added back to NYS income (i.e., not deductible). Where do you see it suggested otherwise?

[1d6594e419ad]

• 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.

IRC125 for Pre-Tax Benefit Programs

These are the payroll deductions covered under the Internal Revenue Code Section 125 for flexible spending account programs.

These include:

• Health insurance premiums
• Dependent Care Assistance Program (DeCAP)
• Health Care Flexible Spending Account (HCFSA)

If you added a domestic partner to your health insurance, a portion of the amount paid by the City is taxable and is included in Box 14.

The amount in the IRC125 box is treated on a pre-tax basis for federal income purposes. It reduces your taxable wages (Box 1) and social security and Medicare wages (Boxes 3 and 5). The reduction in year-to-date earnings shows in your W-2, not in your pay statement.

This amount is subject to state and City taxes and must be added back to the taxable wages in Box 1 when you file your taxes. The amount for DeCAP is shown in Box 14 and Box 10.

These are both from the nyc.gov site.  I did look at the IT-225 directions and see that the A-101 code says "New York City flexible benefits program" and read further on to see some examples of entities that entails.   

It does seem that health insurance premiums from a private employer would not be subject to completing the IT-225, but I just wanted to make sure, as those to items I posted above seem more loosely worded in my opinion.  

[BillM223]

Thank you for the post.

On your W-2, how are the pretax employee paid health insurance premiums shown: as code DD in box 12 or in box 14 as who-knows-what?

If the amount is part of the code DD amount, then this is a no-brainer - it is not taxable in NYS or NYC.

The issue is "125". Most health insurance premiums are NOT paid through a cafeteria plan/Section 125 program. So the statement "The amounts for these programs, covered under Section 125 of the IRS code, are reflected in Box 14, IRC125" when "these programs" apparently includes Health Insurance Premiums is misleading, to say the least.

And note what it says - "If you added a domestic partner to your health insurance, a portion of the amount paid by the City is taxable and is included in Box 14." Only the portion of the 125 plan for THE PARTNER is taxable in NYC, not the part that pays for your own health insurance. Make sense?

[1d6594e419ad]

Thank you for the thorough and thoughtful information. 

W-2 shows DD in box 12 (employer's contribution).  Box 14 shows - "pretax" and the dollar amount. Clarification was made with HR that this info in box 14 is the "sum of your medical, dental, and vision payments".  So unfortunately, not the no-brainer. 

There is no domestic partner in my scenario.  

What initiated my confusion is that TurboTax was forcing me to enter a "category" for this item when completing the W2.  That is how I discovered the link to IRC 125.  If I select the "NY IRC 125/sec 18 subject to NY tax" it generates the NY IT225 form and codes it under A-101 (New York City flexible benefits program).  If I select the "NY IRC 125/sec 18 NY tax exempt", then the IT 225 is not generated.  

[BillM223]

Is this the box 14 PRETAX issue? Where you are told that you have to choose "NY IRC 125/sec 18 subject to NY tax" or "NY IRC 125/sec 18 NY tax exempt"?

You are "NY IRC 125/sec 18 NY tax exempt".

You are being hung up on an issue that does not apply to you (as an employee of a private company).

[1d6594e419ad]

Thank you!

[1d6594e419ad]

Now it has partially become a coding issue with TurboTax.

When completing the federal return, in the W2 box 14 tax category, if I choose 'NY IRC 125/Sec 18 Tax exempt' (or even if I try the 'NY IRC 125/Sec 18 Subject to NY tax' or 'other'), TurboTax is giving me an error message.  It is saying to successfully e-file, I must choose either 'NY IRC 414H Subject to NY tax' or NY IRC 414H NY tax exempt".  I know that is not correct as that is for NY public employee retirement contribution and this $ amount is not for that.  I'm choosing items that are in the drop-down box of the tax categories in the program. I don't understand why the program is not allowing me to use them.

I have proceeded through the program and just by-passed the error, but not all the way to the point of trying to actually file, so I'm not even sure it will let me e-file.  

I am wondering now if I should choose tax category 'NY IRC 125/Sec 18 Tax exempt' which shows up on the NYS IT-2 form as 'IRC125N' for the description next to the 14a amount?

OR should I choose the tax category as 'Other' which then puts the word 'PRETAX' for the description next to the 14a amount on the NYS IT-2?

Regardless of the tax category from above that I choose when going through the NYS return, it is asking me to 'Enter the York City flexible benefits fund program amount that is allocable to New York State.  New York City flexible benefits program IRC 125'.  I'm not sure if I should just leave this blank or enter 0?

[LenaH]

To fix this error, please use PRE TAX or another description in Box 14 and you should not receive an error on your return and will be able to pick a category besides 414(h). 

@1d6594e419ad 

[1d6594e419ad]

Unfortunately, I do have "pretax" in the description and am getting the error message.

[BillM223]

Lena is suggesting that you change the PRETX in your box 14 to have a space in it: i.e., PRE TAX. On other returns, people entered PRE TAX and Other for the category, and the issue went away.

Can you try that?

[1d6594e419ad]

Yes, that works!  Thank you for the clarification on needing the space in 'pre tax'.  I spoke with one of the paid live agents and was not provided with that information when I asked about the error.  

[1d6594e419ad]

One last question -----

Regardless of the tax category from above that I choose, when going through the NYS return, it is asking me to 'Enter the New York City flexible benefits fund program amount that is allocable to New York State.  New York City flexible benefits program IRC 125'. 

I'm not sure if I should just leave this blank, enter 0, or enter that pre tax amount that's in box 14 on W2? (Reminder it is for health insurance premiums paid by the employee for a private employer.)

[LenaH]

The IRC 125 is the amount of your cafeteria plan(s) that may be shown in Box14 of your W-2. They are pre-tax payroll deductions for certain medical and dependent care expenses. Please go back to you W-2 and enter the amount of your IRC 125. If you do not have NYC flexible benefits allocable to NYS, then you should enter $0. If you pay for health insurance premiums with pre-tax dollars, then you should enter the amount shown on your W-2. 

@1d6594e419ad

[1d6594e419ad]

Following the advice of the last post, I entered in the health insurance premium paid with pre-tax dollars from the W2 into that box.  It generated the NYS IT-225 form and is now charging the NY taxes on that health insurance money (under NY code A101 on the IT-225).  From previous posts on this thread, I was under the impression that as an employee of a private company, that would not be taxed by NY.  

On the federal return, I have box 14 marked as 'pre tax' and the category of 'other'.