1. Cafeteria 125 Medical Benefits with sample Smith Problem

2. 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

3. 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

4. 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

5. 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

6. 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

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

8. 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

9. 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

10. 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

11. 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

12. 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

13. Smith Problem W-2
NTTC Training – 2013

14. Smith Problem W-2
NTTC Training – 2013

15. 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

16. Smith Cafeteria 125 Problem
NTTC Training – 2013

17. Smith Cafeteria 125 Problem
NTTC Training – 2013

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

19. 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