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Explaining W2's and other Tax Info
Posted on 03/09/2020
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February 2020 HR Newsletter

 

INTRODUCTION:
For those who have not met me yet, I wanted to introduce myself to you. My name is JoEllen Barton and I'm the new Payroll and Benefits Specialist for WNESU. For the last 20 years I have been working in the capacity of a Full-Charge Bookkeeper, Payroll Administrator, Human Resources Coordinator and Tax Preparer.

 

Thank you to the employees that I have met with over the last two weeks. Through our meetings, I am finding that there is a need for information regarding a wide variety of topics from: How to fill out my time card? My address has changed, now what do I need to do? It's tax time, what is deductible and what is not? 

 

My goal is for the HR office to be a resource for you all to have access to. Over the spring and summer we will be working on updating the HR Connect website and creating a monthly newsletter to help keep everyone in the loop of what is happening. Please let me know if you have any questions or ideas that you would like me to focus on. That being said I wanted to send out a little information email on Tax Time, since we are in the beginning of tax season.

 

TAX TIME! What is deductible?
by: JoEllen M Barton

Tax time can be a stressful time of year for most people. Will I owe? Will I get a refund? Always a nail biter, just not in the same way as a good mystery novel unfortunately. 

The IRS has conducted studies on tax return preparation and they are finding that more and more people are taking tax preparation matters into their own hands. There are many software companies out there offering this option and their biggest marketing strategy is “that anyone can do their taxes” and that it is "easy". What they do not tell you is that they do expect you to have some working knowledge of tax law and/or taxable liabilities. The questions that are asked are simplified such as, did you pay for health insurance for you and your family last year? Did you pay for any medical expenses out of pocket? What they are not asking is "was any of the monies used to pay for these deductions or expenses used with pre-tax wages". Again, they are expecting you to automatically know the answer to this question and take that into consideration when filling out the box/answer. This is very important as you are not able to take these items as a deduction on your tax return as you have already received the tax benefit.

 

Because of this, I thought it would be best to give you a list of WNESU deductions and list what is pre-tax and what is not.

Health Care Premiums: Paid with Pre-Tax Wages
HSA: Paid with Pre-Tax Wages
HRA: Paid by Employer (Not Tax Deductible)
Flex Plans: Paid with Pre-Tax Wages
403(b): Paid with Pre-Tax Wages
Vision: Paid with Pre-Tax Wages
Dental: Paid with Pre-Tax Wages
VSTRS/VMRS: Pre-Tax Wages
Union Dues: Not paid with Pre-Tax Wages (No longer a valid tax deduction)

 

Are pre-tax premiums deductible?

No, you are not allowed to deduct pre-tax premiums for health insurance on your tax return. You are already receiving the tax benefit by paying the premiums with your pre-taxed earnings. You can only deduct the medical expenses paid for with after-tax earnings. Medical insurance premiums are deducted from your pre-tax pay.

What are pre-tax deductions?

Pre-tax deductions are deductions applied to an individual's gross income, thereby decreasing the amount of wages upon which local, state and federal taxes will be owed. One goal of making certain payments pre-tax is to provide incentive for people to plan ahead for various life events, such as retirement and medical expenses.

Common Pre-Tax Deductions

Retirement Savings

Contributions to any retirement savings such as a 401(k) plan, a Roth IRA, a 403(b) plan or a Government Thrift Savings Plan are deducted from an employee’s gross earnings prior to any taxation. Every dollar placed into one of these retirement savings plans reduces an individual’s taxable income by an equal amount. However, there are limits: the contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan for 2020 is $19,500. For employees over age 50 who participate in any of these plans, there is an additional allowance of $6,500 per year considered "catch-up" contributions. Finally, the limit on annual contributions to an IRA remains at $6,000.

Employer high deductible health plans and health savings accounts

If your company offers the combination of a high deductible health plan along with a pre-tax health savings account, an employee may be able to save pre-tax dollars to pay for services and benefits that a high deductible health plan fails to cover. If your business doesn't offer this option to employees as a group, they can still arrange for personal health savings account although it will be funded with after-tax dollars.

Flexible Savings Accounts

Flexible Savings Accounts or FSAs, if your company decides to offer them, can vary as to availability and the maximum amount of annual contributions. Typically, they are used for IRS-approved medical care, procedures or supplies, or adult-care or childcare expenses. Eligible expenses should be made available in your company’s benefits manual or through your HR department.

Group Insurance Plans

Group health insurance plans—including medical care, dental care, vision benefits, life insurance, and short and long-term disability insurance—deduct an employee’s share of the premiums out of his pre-tax wages.

Other effects of payment or savings from pre-tax dollars

For every dollar contributed to a retirement account, flexible spending account or insurance plan, an employee’s taxable income is decreased accordingly. This decrease applies not only to federal income tax, but to Medicare and Social Security deductions as well. Finally, for the majority of states with state income tax, their assessment of an employee’s income begins with the employee’s Adjusted Gross Income (AGI) or the amount of wages after deduction of these pre-tax costs and contributions.

Rules and limits change annually

The rules, regulations, allowable maximums and limits to such programs can change annually. Processing an individual’s taxes correctly is very challenging without the latest information and the right experts who continue to monitor ever-changing regulations.

Why are these deductions listed on my W-2 If I can’t take them?
Box 12: The IRS mandates health care premiums, 403(b) and HSA contributions be reported on your W-2. These are listed for reporting purposes only and do not affect your tax return or the outcome of your return.

Box 14: Reporting Employer Health Care Contributions, Dental, Vision, VMRS, VSTRS and Union Dues are not mandatory and are at the discretion of the employer to furnish this information.

As you can see there is a lot of tax benefits that are already being taken advantage on your behalf. 

I hope you found this helpful and informative. Please let me know if there are other topics you would like me to highlight in the future.

 

To make an appointment to meet with me regarding any questions you may have call or email me at: 802-460-1472 or joellen.barton@wnesu.com.

 

 

Best,


JoEllen M Barton
Payroll/Benefits Specialist

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