However, your life insurance premiums on coverage over $50,000 are subject to Social Security and Medicare taxes, but not federal income tax. Boxes 1, 3 and 5 of your W-2 respectively stand for your federal, Social Security and Medicare taxable wages. Your cafeteria plan premiums aren’t included in the taxable wages of those boxes if they aren’t subject to the tax. With healthcare costs continually on the rise, a section 125 plan can not only help augment your employee benefits package, but it can also offer certain employer and employee tax advantages. A Section 125 plan, also known as a «cafeteria plan», allows employees to convert otherwise taxable items, such as a salary, into nontaxable benefits if they so choose. If you’re enrolled in your employer’s Section 125 benefit plan, your premiums are deducted from your wages on a pretax basis, which gives you a tax break.

  1. Your employer can show other types of payments and wages in Box 14, such as union dues, nontaxable income, educational assistance payments and certain contributions to a pension plan.
  2. To offer you Section 125 benefits, your employer must establish a plan that meets Section 125 of the Internal Revenue Code.
  3. With healthcare costs continually on the rise, a section 125 plan can not only help augment your employee benefits package, but it can also offer certain employer and employee tax advantages.
  4. Contributing to a cafeteria plan may still result in a net benefit even if you do get dinged by an excess amount of funds.

Security Certification of the TurboTax Online application has been performed by C-Level Security. Learn how to protect yourself and your money from falling victim to tax fraud. Here is a link with more information on Box 14 entries on a NJ W2.

Benefits offered under the plan are pretax, which means your premiums are taken out of your wages before taxes are withheld, which lowers your taxable income and therefore your tax burden. Contributions to DeCAP are not subject to federal, social security, and Medicare taxes. The amounts in Box 1 for taxable wages and Boxes 3 and 5 for social security and Medicare wages are reduced by the amount of the contribution. You can report health insurance you offer or reimburse your employees on their W-2s.

You may want to consider speaking to a tax professional about how a section 125 plan could impact your business directly. To understand the amount in ​box 14​, you must know the taxes that don’t apply to your Section 125 deductions. Yes, you will enter this information when entering your W-2 and TurboTax will automatically determine how it will impact your return and ask you any additional questions if needed. The City sends wage and tax information to the Social Security Administration and the New York State Department of Taxation and Finance. You have clicked a link to a site outside of the QuickBooks or ProFile Communities.

Does Taxable Income Include Pretax Health Insurance?

The above listed taxable fringe benefits are shown in Box 14. The Social Security Administration uses your SSN to record your earnings for future social security and Medicare benefits. I’m just a post away if you need additional assistance with your W2 forms. Also, an item with tax tracking type set to Other will affect Box 1, regardless of its tax settings. With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish. Or, get unlimited help and advice from tax experts while you do your taxes with TurboTax Live Assisted.

The taxable wages boxes on your annual W-2 form show only your wages from which taxes were deducted; this doesn’t apply to Section 125 contributions. If your employer has enrolled you in a S125 plan, they may notate this on ​box 14​ of your W-2 using the term «S125.» According to the IRS, a section 125 plan provides employees with an opportunity to receive certain benefits on a pre-tax basis.

However, only your employer knows what these items are referring to. These are the payroll deductions covered under the Internal Revenue Code Section 132 for Commuter Benefits. This is the sec125 box 14 combined cost (employer’s and employee/retiree’s) of employer-sponsored group health plans. Social security wages are not affected by deferred compensation or pension contributions.

Taxable Wages

Most cafeteria plans are not subject to Medicare taxes, and by allowing employees to defer income to these programs, employers generally pay less in payroll taxes. Cafeteria plans also can build employees’ loyalty within the company by saving them money and offering benefits they could not otherwise afford. A Section 125 plan typically lets employees use pretax money to pay for health insurance premiums for medical, dental, and vision. Other options include retirement deposits, supplemental life or disability insurance, Health Savings Accounts, and various medical or dependent care expenses.

The state is NY and the individual is a non-NYC resident and resides and works in Long Island. A Code S125 refers to a Section 125 plan which describes payroll deductions for an employee benefit. DeCAP contributions are subject to New York State and City taxes and must be added back to Box 1 when filing New York State and City tax returns.

Box 12:

Since the taxable wages boxes of your W-2 don’t include your Section 125 contributions, to get your real gross wages you should add the amount in ​box 14​ to the amount in the respective taxable wages box. Your last pay stub for the year includes pretax deductions in your gross wages. The amount you get after reconciling your W-2 should usually match what’s on your pay stub.

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There’s also a large variety of eligible over-the-counter items. Allergy medicines, cold medicines, contact lens solutions, first-aid kits, pain relievers, pregnancy tests, sleeping aids, and throat lozenges are among the dozens of eligible items. If it is an employee benefit that has already been removed from Wages in Box 1, then, choose a category of Other. If the RET is a retirement contribution and it’s already been removed from Wages in Box 1 of your W-2, then it’s been treated correctly, and you can just chose the Category of Other. You should change your home address in NYCAPS Employee Self-Service (ESS) or report address changes to your agency.

Box 10: Dependent care benefits

To help you avoid confusion, here are some quick explanations of commonly misunderstood tax-saving benefit options you can offer your employees. Paychex can help you offer section 125 plans for your small, large, or enterprise-level business today. The W-2 form includes a one-time, non-pensionable payment for health care worker bonus received by eligible City employees. The payment is not subject to New York State, City, or Yonkers withholding taxes. And while information like that found in W-2 boxes seem simple to complete at first, Form W-2 codes could be hard to interpret on your own.

Flexible spending account rules allow pre-tax deductions to be used to fund these applicable medical expenses, and can lead to significant amounts saved each quarter and year. If you’re thinking about adding this benefit, it’s important to note that a POP may only be offered by an employer with a group medical plan. A Premium Only Plan (POP) is a great way to save on insurance premiums with pre-tax dollars contributing to the overall cost. In combination with group health insurance, a POP reduces taxable income and results in a reduction in the amount used to determine your company’s FICA and FUTA payroll taxes, as well as any applicable state taxes.

Employees can choose to deduct amounts from their gross income to contribute to a section 125 plan on a pre-tax basis. Both employee participants and employer sponsors of section 125 plans receive certain tax exemptions related to employee pre-tax contributions. Employee contributions are not subject to federal income tax.

This money is taken out of the individual’s gross pay and can be used for items such as group health insurance premiums, qualified out-of-pocket medical expenses, and daycare for eligible dependents. Employees who are enrolled in a Section 125 plan can set aside insurance premiums and other funds pretax, which can then go toward certain qualified medical and childcare expenses. Depending on where they live, participating employees can save from 20% to 40% in combined federal, state, and local taxes on a variety of items that they typically already purchase with out-of-pocket post-tax funds. Employers can save an additional 7.65% on their share of payroll taxes. As with food service, a cafeteria plan allows employees to pick benefits from a menu of offerings. Any costs beyond the maximum your company will pay then become the responsibility of the employees, paid for via payroll deductions throughout the year.