Medical deduction for NJ

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Almost there
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Medical deduction for NJ

Post by Almost there »

I am doing my NJ state taxes using H&R and it asks my medical deductions for 2010:

From H&R:
Allowable Medical Expenses. Medical expenses means nonreimbursed payments for physicians, dental and other medical fees, prescription eyeglasses and contact lenses, hospital care, nursing care, medicines and drugs, prosthetic devices, X-rays, and other diagnostic services conducted by or directed by a physician or dentist. In addition, medical expenses may also include amounts paid for transportation primarily for and essential to medical care and insurance (including amounts paid as premiums under Part B of Title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care. As a general rule, medical expenses allowed for Federal income tax purposes will be allowed for New Jersey income tax purposes.
Can I add my COBRA payments to my 2010 medical expenses?

Almost there
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animal
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Post by animal »

almost there, go straight to the horses mouth...

http://www.state.nj.us/treasury/taxation/njit13.shtml

Medical Expenses. Certain medical expenses in excess of 2% of your gross income may be deducted. In general, medical expenses allowed for Federal income tax purposes are also allowed for New Jersey purposes. Only medical expenses for yourself, your spouse/civil union partner or domestic partner, and your dependents qualify. These expenses must not be reimbursed by your insurance or similar provider. Some examples of allowable medical expenses are payments for doctor's visits, dental care, hospital care, eye examinations, eyeglasses, medicine, and x-rays or other diagnostic services directed by your physician or dentist. Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions. You may also deduct transportation costs which are allowable on your Federal return. If you deduct medical expenses in one year and are reimbursed in the next, you must include the reimbursement as income in the year you receive the payment.

I would say COBRA is an Insurance Premium.
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Almost there
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Post by Almost there »

Thank you, animal.

I also found the following statement on H&R:

Receiving COBRA insurance at a reduced rate doesn't affect medical deductions. You can still itemize all medical expenses, including the cost of COBRA insurance.

Almost there
sailor234
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Post by sailor234 »

"Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions."

This is a surprise to me and I worked in NJ for many years. To my recollection, TaxCut never suggested adding the Medicare tax as a state deduction. Perhaps I missed it.

Has anyone here taken this deduction successfully in the past?

Ray
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. George Bernard Shaw
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animal
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Post by animal »

sailor234 wrote:"Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions."

This is a surprise to me and I worked in NJ for many years. To my recollection, TaxCut never suggested adding the Medicare tax as a state deduction. Perhaps I missed it.

Has anyone here taken this deduction successfully in the past?

Ray
Ray,

FWIW. I've had a CPA look over my return for the last couple of years. I've deducted Medical Insurance Premiums from the State Return, there have been no problems. As for Medicare & SS, I can't comment on that.

However if it was me, I would print the page from the State website and keep it with my records just in case.

Hope this helps.

A.
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HueyLD
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Post by HueyLD »

sailor234 wrote:"Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions."

This is a surprise to me and I worked in NJ for many years. To my recollection, TaxCut never suggested adding the Medicare tax as a state deduction. Perhaps I missed it.
The quoted sentence is confusing. However, what it means is most likely the medicare insurance premiums for Parts B and D as shown on your 1099-SSA.
sdineen
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Medical Insurance follow up - HR Block and NJ questions

Post by sdineen »

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?

I'm also using HR block software and it refers to "treat same as Federal rules", but as the State is taxing the amount.... isn't that different?

The follow up question to that is Medical Flexible Spending Account dollars. I had almost 4000 in the plan this year and spent it all on no reimbursed expenses (e.g. braces). It would be helpful to list that as well to get something back.
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grabiner
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Re: Medical Insurance follow up - HR Block and NJ questions

Post by grabiner »

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.
The follow up question to that is Medical Flexible Spending Account dollars. I had almost 4000 in the plan this year and spent it all on no reimbursed expenses (e.g. braces). It would be helpful to list that as well to get something back.
Again, for NJ purposes, your employer gave you $4000 which was taxable, and put it in an account; you used that account to pay for medical expenses.
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lynnezeee
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Re: Medical Insurance follow up - HR Block and NJ questions

Post by lynnezeee »

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?
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grabiner
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Re: Medical Insurance follow up - HR Block and NJ questions

Post by grabiner »

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).
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DESSI
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Re: Medical deduction for NJ

Post by DESSI »

does it make a difference if NJ resident or non resident?
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grabiner
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Re: Medical deduction for NJ

Post by grabiner »

Welcome to the forum!
DESSI wrote:does it make a difference if NJ resident or non resident?
The medical deduction on your NJ tax is the same whether you are a resident or nonresident; see the NJ-1040NR form. However, if you are a nonresident of NJ, you can take a credit against your home-state tax based on your NJ tax. If your home state has a higher tax rate (such as NY), the NJ tax reduction will be all or almost all lost, as you get a credit equal to the share of the tax on income taxed by both states. If your home state has a lower tax rate, your credit will be limited to a prorated share of the tax paid to NJ, so you will get the benefit.

There is also one other exception. PA and NJ have a reciprocity agreement not to tax each other's residents for salary. Thus, if you are a PA resident, you won't owe any NJ tax unless you have other NJ income sources (for example, a rental property in NJ), and the NJ deduction rules are irrelevant.
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