lynnezeee wrote:grabiner wrote:Usual disclaimer: Do not treat anything on the forum as tax advice; please contact a tax professional, or request an official ruling from the state.
sdineen wrote:Sorry if this is a slight hijack of the post, but wondering on the clarity of the answer regarding medical insurance premiums. I realize for the Federal I cannot list as medical expenses deductions taken from my payroll for our group plan/insurance premiums. Its already treated tax free. But New Jersey still taxes this deducted amount ( W2 form box 16 "State wages, tips" still includes this amount.), so in deference to Fed treatment, can I submit the payments/deductions in my NJ medical deduction?
That certainly makes sense. For federal purposes, your employer paid for the insurance, so you cannot deduct it. For NJ purposes, your employer paid you taxable compensation (which you had the option of taking as cash instead) and you paid for the insurance, so it should be deductible.
OK, I'm confused. I filed my taxes with H&R Best of Both Worlds. My state came up as we owed, this has never happened before. The rep assigned to us is in IL, she is not familiar with NJ laws but doesn't think that this statement makes sense. I'm trying to understand... Just for my state return I can claim what I pay into my health benefits?
Here's my understanding of the situation (although you now have a tax advisor, who should know better or should know to check with someone else authoritative):
Say that your employer pays you $60,000, and takes out $5,000 of that as a health insurance premium. Your W-2 will show $55,000 federal wages and $60,000 NJ wages.
Now, if your employer paid you $60,000 under NJ law, how did you pay for your medical insurance? You used $5,000 that was not reimbursed by your employer. Medical expenses which are not reimbursed are deductible.
The same rule clearly applies if $5000 were taken out of your paycheck and deposited to a 403(b), which is also not allowed as a deduction in NJ. Under Federal law, that $5000 is not income. Under NJ law, the $5000 is income and it taxed now, but since it was contributed to a 403(b), it is considered to be your own contribution and is not taxed again upon withdrawal (if you still live in NJ at the time).