Cafeteria 125 Medical Benefits with sample Smith Problem

Unreimbursed Medical Expense Deductions Federal return Enter on Schedule A Excess over AGI 7.5% (65 and over) 10% (under 65) Entries made on Schedule A are carried over to NJ-1040 by TWO NTTC Training – 2013

Unreimbursed Medical Expense Deductions NJ return Threshold is just 2% of gross income So extra NJ-eligible medical deductions 2 to 7.5% (65 and over) 2 to 10% (under 65) NTTC Training – 2013

Unreimbursed Medical Expense Deductions NJ return CAFE 125 entries are not entered on Schedule A already deducted from Federal W-2 income Enter on NJ-1040 Line 30 Medical Expenses with a scratch pad entry NTTC Training – 2013

What Are Cafeteria 125 Benefits? Section 125 of IRS regulations Allow setting aside pre-tax income for certain employer-offered benefits Saves money for employees Reduces Federal Gross Income and Social Security/Medicare Wages Reduces taxes on those amounts NTTC Training – 2013

What Are Cafeteria 125 Benefits? Cafeteria benefit options can include: Medical premiums/expenses Adoption and dependent care assistance Legal assistance 401K contribution Group term life insurance NTTC Training – 2013

What Are Cafeteria 125 Benefits? Section 125 specifically excludes: Education assistance Medical Savings Accounts Meals and transportation benefits NTTC Training – 2013

New Jersey Tax Treatment Which Cafeteria 125 Benefits are deductible in NJ? Medical premiums/expenses only! Because of special tax situation Deducted from federal wages on W-2 Not deducted from NJ wages on W-2 NTTC Training – 2013

Cafeteria 125 W-2 Reporting Watch for large wage differences Are Box 1 Federal Wages (much) less than Box 16 State Wages? Explanation often is Cafeteria Plan: Box 14 sometimes coded as CAFE 125 But sometimes not listed in box 14 at all NTTC Training – 2013

Cafeteria 125 W-2 Reporting When you see large Box 1 & 16 wage differences: Ask taxpayer how much of this is CAFE 125 covered medical expenses? Can also be adoption, dependent care, legal, etc. - not deductible in NJ NTTC Training – 2013

How To Deduct Cafeteria 125 Benefits Already deducted from Federal Wages in W-2 Box 1 So can not enter further deduction on Schedule A Not deducted from NJ Wages Box 16 Must use Scratch Pad to manually enter amount on NJ line 30 Medical Expenses NTTC Training – 2013

How To Deduct Cafeteria 125 Benefits Let’s look at a sample W2 for John Smith Then complete John Smith’s tax return NTTC Training – 2013

Smith Problem W-2 NTTC Training – 2013

Smith Problem W-2 NTTC Training – 2013

Smith Problem W-2 Fed Taxable Soc Sec Wages NJ Taxable Gross Income $37,079 -414H Pension $2,235 -Cafe 125 Med $817 Net Amounts $34,027 $36,262 NTTC Training – 2013

Smith Cafeteria 125 Problem NTTC Training – 2013

Smith Cafeteria 125 Problem NTTC Training – 2013

Cafeteria 125 Medical Benefits Comments? Questions? NTTC Training – 2013

Smith Cafeteria 125 Problem Refund Monitor TY2013 Note/Step Fed AGI Line 38 Fed Refund NJ AGI Line 38 NJ Refund Line 56/66 NJ Med Ded Line 30 After W2 34,027 1,606 35,079 96 6-After Doctors/ Drugs 34,721 102 358 Notes 3,4,5 152 7-After Café 125 $817 33,904 166 1,175 $817 added $14 to NJ Refund! NTTC Training – 2013