The Form W-2 you receive from your employer after the end of each year helps you fill out your tax return by showing your taxable income and income tax withholding. It also shows the amount of your wages that are subject to Social Security and Medicare taxes, also known as FICA taxes. If the amount subject to federal income tax, located in box 1, is smaller than the amounts subject to Social Security and Medicare tax in boxes 3 and 5, you have pretax expenditures from your paycheck.
Pension and Retirement Contributions
If you place money into a tax-deferred retirement account through your employer, your wages subject to federal income taxes do not include those amounts. Employer retirement plans include 401(k) plans, 403(b) plans, 457(b) plans, simplified employee pensions (SEPs) and savings incentive match plans for employees (SIMPLEs). These deferrals are not included in your taxable income for the year, but will be taxed when you take distributions from the account. This is particularly advantageous if you expect to pay a lower income tax rate when you take distributions from the account. The amounts are reported in box 12 with codes from D through H, depending on the type of plan.
Medical Insurance Costs
The most common pretax medical benefit is medical insurance payments you make through your employer. For example, if as a fringe benefit your employer allows you to pay for your medical insurance instead of receiving cash, the amount is not included in your federal taxable income. Dental insurance and vision insurance can also be included as excludable medical benefits. Employer-sponsored health insurance amounts are reported in box 12 with the code DD. Employers may also make contributions to a health savings account (HSA) on behalf of the employee. An HSA allows pretax contributions, tax-free growth, and tax-free distributions as long as the distribution is used for qualifying medical expenses. However, only taxpayers who have a high-deductible health plan (HDHP) coverage are eligible for HSA contributions. HSA contributions are denoted with code W in box 12.
If you move as a result of your work and meet the criteria, your employer can reimburse your moving expenses and exclude them from counting towards your federal taxable income. To qualify, your move must be closely related to a change in employment, your new place of employment must be at least 50 miles farther from your old home than your old job, and you must work at your new job for at least 39 weeks of the first 52 weeks you are in your new location. On the W-2, excluded moving expense benefits will be reported in box 12 with code P.
Your W-2 may document pretax adoption benefits paid by your employer on your behalf. You may exclude amounts from income that your employer pays for a qualified adoption program of up to the annual limit. As of the 2011 tax year, the limit is $13,360. Qualified adoption expenses include court costs, attorney fees, traveling expenses and other reasonable expenses related to adopting a child. Pretax adoption benefits will be listed in box 12 and coded T.
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