Are the pretax employee paid health insurance premium contributions subject to NY state taxes?

Forum|Forum|1 year ago
March 5, 2025
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It's easy to find that this contribution is not federally taxable, but I have found conflicting information as to if it is taxable for NY state. Employment is with a private employer, not city or state of NY.

BillM223

New York, like many states, starts with the federal income and deduction numbers, then adds and subtracts a few things to arrive at NY income.

In terms of your specific question, the NY Instructions for IT-201 state "The amount entered on line 1 (wages, salaries, tips, etc.) should be the same as the amount reported on federal Form 1040, line 1z." So at the beginning, at least, the health insurance premiums are deductible in NYS.

Now, we have to examine whether or not these premiums get added back to NY income on form IT-225 (Additions). Sure enough, the form IT-225 Instructions state:

"A-101: New York City flexible benefits program (IRC 125)

If any federal Form W-2 wage and tax statement shows that an amount was deducted or deferred from your salary under a flexible benefits program established by New York City or certain other New York City public employers on your or a decedent’s behalf, then enter that amount."

So, as it sounds like you already know, only certain health premiums of public entities are added back to NYS income (i.e., not deductible). Where do you see it suggested otherwise?

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1d6594e419adAuthor

For Health Insurance Premiums, Dependent Care Assistance Program (DeCAP), and Health Care Flexible Spending Account (HCFSA):
The amounts for these programs, covered under Section 125 of the IRS code, are reflected in Box 14, IRC125. The amount for DeCAP is shown also in Box 10. They are not subject to federal, Social Security, and Medicare taxes. The reduction in earnings shows on your W-2 but not on your pay statement.

The amount in the IRC 125 Box is subject to New York State and City taxes. The NYS income tax instructions direct the income tax filer to report wages as they appear on the W-2 in Box 1 then to add back the amount to arrive at New York State/City taxable wages.

IRC125 for Pre-Tax Benefit Programs

These are the payroll deductions covered under the Internal Revenue Code Section 125 for flexible spending account programs.

These include:

Health insurance premiums
Dependent Care Assistance Program (DeCAP)
Health Care Flexible Spending Account (HCFSA)

If you added a domestic partner to your health insurance, a portion of the amount paid by the City is taxable and is included in Box 14.

The amount in the IRC125 box is treated on a pre-tax basis for federal income purposes. It reduces your taxable wages (Box 1) and social security and Medicare wages (Boxes 3 and 5). The reduction in year-to-date earnings shows in your W-2, not in your pay statement.

This amount is subject to state and City taxes and must be added back to the taxable wages in Box 1 when you file your taxes. The amount for DeCAP is shown in Box 14 and Box 10.

These are both from the nyc.gov site. I did look at the IT-225 directions and see that the A-101 code says "New York City flexible benefits program" and read further on to see some examples of entities that entails.

It does seem that health insurance premiums from a private employer would not be subject to completing the IT-225, but I just wanted to make sure, as those to items I posted above seem more loosely worded in my opinion.

BillM223

Thank you for the post.

On your W-2, how are the pretax employee paid health insurance premiums shown: as code DD in box 12 or in box 14 as who-knows-what?

If the amount is part of the code DD amount, then this is a no-brainer - it is not taxable in NYS or NYC.

The issue is "125". Most health insurance premiums are NOT paid through a cafeteria plan/Section 125 program. So the statement "The amounts for these programs, covered under Section 125 of the IRS code, are reflected in Box 14, IRC125" when "these programs" apparently includes Health Insurance Premiums is misleading, to say the least.

And note what it says - "If you added a domestic partner to your health insurance, a portion of the amount paid by the City is taxable and is included in Box 14." Only the portion of the 125 plan for THE PARTNER is taxable in NYC, not the part that pays for your own health insurance. Make sense?

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