W2 question

[cppoly]

My employer issued W2's and I think there is an error on them. Box 1 is supposed to contain gross income minus voluntary deductions such as 401k, medical, vision, and dental. 401k, medical, and vision deductions were subtracted from gross income and that is what's in Box 1, however the dental deduction was not deducted from Box 1. Each paycheck that I receive already has 401k, medical, dental, and vision taken out, so does that mean these are indeed pre-tax deductions by definition? The only way dental would be excluded from Box 1 is if it is an after-tax deduction (however, since dental is automatically deducted from my paycheck wouldn't this by default be pre-tax?). Anyone have any ideas why dental was not deducted from Box 1 (my taxable income)?

[Sidney]

Anyone have any ideas why dental was not deducted from Box 1 (my taxable income)?

Probably your employer's payroll department.

[investor1]

Your AGI should be listed on your final pay stub for 2012. Does that match box one? Was the cost of dental deducted from the AGI listed on your pay stubs throughout the year?

Just because payroll pays that bill for you doesn't imply that it is taken out prior to income tax. It does in many cases, but not always. Check your pay stubs. If your W-2 doesn't match your pay stubs, they messed up your W-2. The other thing you can do, is read your benefits documentation and see you if can find any info about the cost of dental being deductable.

[sscritic]

Box 1 is supposed to contain gross income minus voluntary deductions such as 401k, medical, vision, and dental.

Where do you see that in the instructions? Here is what I see:

Box 1—Wages, tips, other compensation. Show the total taxable wages, tips, and other compensation (before any payroll deductions) that you paid to your employee during the year. However, do not include elective deferrals (such as employee contributions to a section 401(k) or 403(b) plan) except section 501(c)(18) contributions.

An elective deferral is your 401(k) since you will be taxed later. Paying health premiums is not an elective deferral. Do you want them to tax you later on your health premiums after the deferral runs out?

On the other hand:

Include the following.
...
18. Employee contributions to a health savings account (HSA).

It sure looks like voluntary arrangements you make to pay for health care go into Box 1. I used to buy life insurance voluntarily. It was my income. My employer was just being nice to me to handle the payments for me. It saved me buying stamps and writing a check. That went into Box 1.

[cppoly]

I have a document from the company saying medical, dental, and vision will be taken out bi-weekly on a pre-tax basis. To me that is enough proof.

Investor 1, I did not compare pay stubs to W2 yet.

But let's say the discrepancy is that my official document from the company says "pre-tax" for medical, dental, and vision. However, lets say dental is actually after-tax as indicated on my W2. I guess that's more of a legal argument than a wrong W2.

[Geologist]

Some deductions from your paycheck are pre-tax, some are not. Some may be pre-FICA as well as pre-income tax. Which assortment you have depends on how your employer has things set up (and even your choices). For example, if you pay disability insurance premiums after-tax, any benefits you might receive would be tax-free. If the disability premiums are pre-tax, then benefits would be taxable.

Therefore, the sum in Box 1 (which may include pre-tax insurance premiums as well as 401k deductions) will probably not be the sum of what was subtracted from each of your paydays.

So, if you want to ensure that Box 1 is correct you need to talk to HR/payroll department.

[Ace1]

Pretax medical deductions are referred to as section 125 deductions.
If your plan literature includes the dental coverage as part of the medical plan,
it would seem the monthly premiums for dental should be excluded from your taxable income,
presuming your entire plan is qualified as a section 125 plan.
If the dental plan is separate it is possible it may not be qualified to be section 125.
You need to go to your payroll department and ask them the questions on what is included
and what should be excluded.

[cppoly]

Unfortunatly, my HR department is not being cooperative. I only got an answer that that dental is not pre-tax and this doesn't answer the why portion because I believe it's incorrect.

[investor1]

Check your pay stubs. If they haven't been deducting it all along, they are probably telling you the truth. Beyond that, it is tough to say without reading your plan documents.

[Sidney]

Unfortunatly, my HR department is not being cooperative. I only got an answer that that dental is not pre-tax and this doesn't answer the why portion because I believe it's incorrect.

My experience is that HR doesn't know anything useful about nearly everything. The people who should know exactly what is in your W2 is the payroll department because they are the ones responsible for producing W2s (they are also the ones who deduct stuff and ultimately pay you each pay period).

[cppoly]

Update:

I checked my paycheck, and dental is listed under the "Deductions" section along with medical, 401k, and vision....

So does this mean this is pre-tax?? That would mean this is indeed a mistake on the W2

[Geologist]

If all these deductions (dental, medical, etc.) have a notation on your paystub saying that they are pre-tax, then you have something to discuss with HR/payroll. As I said before, just because something is deducted from your pay doesn't make it automatically pre-tax. With my employer, one dental plan is pre-tax, but there is an alternative dental plan that is not (its premiums would still be deducted from paychecks).

[sscritic]

Update:

I checked my paycheck, and dental is listed under the "Deductions" section along with medical, 401k, and vision....

So does this mean this is pre-tax?? That would mean this is indeed a mistake on the W2

My paystubs, when I got them, right at the top, had gross and taxable gross. I owned a calculator and could subtract. Let's say the difference was $220. That $220 was the non-taxable part of my gross. There were other numbers under the deductions column. I could then play a game to see if any combination of the deductions added up to $220. If I found such a combination, that told me that those deductions were not taxable but all the other deductions were taxable.

Actually, I didn't have to do that as all the non-taxable items were prefaced with an *. I only mention it because it sounds like your paystub doesn't have *s. Now if your paystub does not have gross and taxable gross, then you can't play the matching game as outlined above.

For comparison, here were some deductions without an *: federal tax, state tax, medicare, social security, parking, and union dues.

[damjam]

On the last paystub I looked at all the deductions were together, those that were pre-tax had an additional notation next to them*.

*Just like this.

[cppoly]

If all these deductions (dental, medical, etc.) have a notation on your paystub saying that they are pre-tax, then you have something to discuss with HR/payroll. As I said before, just because something is deducted from your pay doesn't make it automatically pre-tax. With my employer, one dental plan is pre-tax, but there is an alternative dental plan that is not (its premiums would still be deducted from paychecks).

I will check with payroll department. I'm just making an observation that my 401k, medical, dental, and vision are all grouped together as deductions in the same location on my pay stub and W2. It seems odd that my 401k, medical, and vision are all exempt from taxes and dental is not.

On a different note, what benefit would an employer gain from paying into a dental plan after taxes. Wouldn't the dental plan still collect the same amount of money from the employer regardless of pre or after tax? Seems like it is only a disadvantage to the employee for after tax. Also, if it just a bookkeeping issue of checking a box pre or after tax, it seems like a silly move for an employer to make without any benefit and only negative consequence for the employee, no?

[sscritic]

You don't need to check with payroll, you just need to see *s. If you can't see *s, see if you can see the words gross and taxable gross.

[investor1]

Deductions simply mean payroll deducted that amount for that purpose from your paycheck. They are paying your bills for you. As others have mentioned, pre-tax vs post-tax is typically shown with some notation (it's a * for me too). If not, you can play the matching game mentioned earlier. You need to determine whether or not the cost was contributing to your AGI throughout the year. If it was, it isn't tax deductible. Otherwise, it is and your W-2 is wrong.

Employers have an opportunity to provide a plan to their employees at lower costs than the employee is likely to get on their own due to the package deal the employer gets from providing a certain volume of customers to the insurer. The employee enjoys slightly cheaper insurance, the employer becomes slightly more attractive to potential employees since they offer some coverage at a decent cost, and the insurer has a lot of customers. Also, the government is happy to receive the extra revenue, and the medical/dental industry is happy to inflate prices due to the availablity of coverage which results in no extra cost to the patient.

[Geologist]

I don't know why there is an after-tax dental plan; I've never used it and see no reason to, but it exists nonetheless.

sscritic is right that there may be cryptic notations (my employer used + and - rather than * at one point) on the paystubs, but not always. Later, the paystub became a whole page. This had more room...so my employer provided less information and dropped the +/-. Eventually, the +/- was returned and now that it is all online, there are headings "pre-tax" and "after-tax."

Keep in mind that there is a possibility you accidentally shifted the dental insurance into after tax. There also used to be (still is?) a total limit on all pre-tax deductions (401k, medical, flexible spending accounts, parking/mass transit tickets, etc.). Reaching that limit would force some normally pre-tax deductions into after tax.

[cppoly]

My paycheck doesn't have any of that... Oh well

[investor1]

There also used to be (still is?) a total limit on all pre-tax deductions (401k, medical, flexible spending accounts, parking/mass transit tickets, etc.). Reaching that limit would force some normally pre-tax deductions into after tax.

Source? I know each deduction tends to come with a limit attached, but I am far too naive to be aware of an overall limit.

[Geologist]

There also used to be (still is?) a total limit on all pre-tax deductions (401k, medical, flexible spending accounts, parking/mass transit tickets, etc.). Reaching that limit would force some normally pre-tax deductions into after tax.

Source? I know each deduction tends to come with a limit attached, but I am far too naive to be aware of an overall limit.

I learned about this at an employer that I worked for in the 1990's. The employer had many technical (=well-paid) employees. What I remember is that the form for signing up for flexible spending account deductions for the next year listed the maximum you could direct into these accounts given your current contributions to 401k, medical premiums, etc. This maximum was greater than the 401k maximum, of course, but I don't remember now where it came from. I now work for a government where the median salary is about 30,000 so few employees would approach this pre-tax limit, so I assume only those who are affected are notified if the limit still exists.

[Epsilon Delta]

There also used to be (still is?) a total limit on all pre-tax deductions (401k, medical, flexible spending accounts, parking/mass transit tickets, etc.). Reaching that limit would force some normally pre-tax deductions into after tax.

Source? I know each deduction tends to come with a limit attached, but I am far too naive to be aware of an overall limit.

I learned about this at an employer that I worked for in the 1990's. The employer had many technical (=well-paid) employees. What I remember is that the form for signing up for flexible spending account deductions for the next year listed the maximum you could direct into these accounts given your current contributions to 401k, medical premiums, etc. This maximum was greater than the 401k maximum, of course, but I don't remember now where it came from. I now work for a government where the median salary is about 30,000 so few employees would approach this pre-tax limit, so I assume only those who are affected are notified if the limit still exists.

Prior to the Tax Relief Reconciliation Act of 2001 contributions to a defined contribution plan were limited to the lesser of $30,000 or 25% of compensation. This limit included both employee and employer contributions. Tax free contributions to flexible spending accounts etc. were not counted as part of your compensation for this rule, so increasing flexcomp would decrease your compensation and hence your allowable 401(k) contributions.

Incidently this is the reason all 401(k)s at the time had limits on the deferral percentage, and they tended to be less than 25% to account for employer matches and other tax free compensation, since if somebody went over the limit the corrective action usually annoyed both the employee and payroll. Many plans have since relaxed the limits, but a few still have 20% limits on 401(k) contributions over 10 years later.

[scrabbler1]

I assume the OP is referring to his federal W-2. Be aware that states have different definitions of Taxable Gross Income so that some pre-teax deductions have to be added back. For example, back in my working days I had to file a New Jersey Non-Resident return and had to add back the pre-tax medical and transit (TransitChek) deductions (the W-2 already reflected this) to meet that state's income definition but they remained pre-tax for federal and home state (New York) purposes.

[cppoly]

Update: turns out I was right. The dental was not selected as pre-tax but HR said going forward it will be setup that way. The question is if it was setup wrong for past years, does the company have to reissue W2's for previous years so I can collect a proper refund?

[investor1]

I'm not 100% sure here, but the deadline for filing amended returns for previous years has past. I don't think the government is going to give you anymore money. If you want reimbursement, I think you are going to have to get it from your company.

At least it is fixed going forward. It sounds like your efforts will save money for you and all of your co-workers.

[billern]

Update: turns out I was right. The dental was not selected as pre-tax but HR said going forward it will be setup that way. The question is if it was setup wrong for past years, does the company have to reissue W2's for previous years so I can collect a proper refund?

If they issued incorrect W-2s the answer is yes, they should amend the W-2s. If they have changed the plan recently to make it excludable from box 1, there is nothing that needs to be amended.

The statute of limitations 3 years after the later of the due date of your return or when it was filed so the previous few tax years are still open.