I'm not an accountant or a tax attorney...and I haven't worked for anyone as an employee since I was in college...but a client asked me the following: He is paid as an employee. The company he works for has a cafeteria health insurance plan that covers him....but for him to choose the "family" option (insuring his wife and child), he has to pay $600/month which is automatically deducted from his paycheck. Is that $600/month ($7,200) deductible as a medical expense? Will it likely already be reflected in his taxable income on his W2??
I just know that it became fully deductible last year. Quite frankly, I'm no tax expert. Hopefully someone can fill us both in.
another tax question. As a home owner do I have to do something extra for the homestead tax thing. I got something in the mail from a CPA (wanting business) saying I have to fill out this extra thing. I have usually just gone to the company that files my taxes and just assumed that was part of the reqular tax papers, because they ask me if I am a homeowner........ I think....
Cafeteria money is like 401(k) deductions. They don't count as part of your final salary for tax purposes (an above the line deduction). So if you made $25,000 and put $1,000 into your cafeteria plan, you would count $24,000 for your income at that job (assuming you didn't have any 401(k) deductions). The cafeteria deductions should be accounted for in your W-2.
You have to apply for homestead exemption (speaking from Texas and Minnesota experience). Generally it is with your local county taxing authority. You generally don't have to reapply once you have it on a particular residence.
So assume he makes $150,000/year. They take $300 from each paycheck to pay health insurance. At the end of the year, they just deduct the $7,200 from the gross figure to get to his taxable income, huh?
kool & the gang. either way, it's coming off his taxable income...he just needed to know exactly how. (and the accountant who offices down the hall is on vacation!!!)
Thanks, again. He's sold a business and gone to work for the buyer...just a different approach for him on this.
I have had it done 2 ways. On our old system I paid $300 a month for insurance. That came out of pocket and was not taken out pre-tax. At that time I could deduct it from my taxes (I did have some supplemental amount taken out pretax but the guy that set up my deductions screwed it up and did not take out my monthly payments). When we switched companies they fixed the error and my $300 was included in my cafeteria plan. At that point I was no longer able to claim that money because it came out of my check before they figured my taxes. That is figured in on the W2. Say I make 13,600 gross a year, on my W2 they only report that I made 10,000. In fact it shows that on my monthly paycheck, as well. The thing you will need to check Max is if the money he pays monthly is included in his Cafeteria plan, or if they did like I did originally and it is not included. If it is included then he cannot deduct it from his wages.
It is not deductible on his Tax Return. Cafeteria Plan Premiums are deducted from his taxable income at the employer level. Basically the amounts were already deducted when he gets his W-2.
Keep in mind this isn't for every health insurance plan. Only Cafeteria 125 plans and obviously if the employer pays for them completely, you don't have to report that as compensation either. Most health insurance & dental insurance is pre-tax, but some aren't, and some companies even have both available. Cafeteria Plans are completely pre-tax(Income, Unemployment, & FICA). 401(k)s and SIMPLEs employee contributions are only exempt from income tax. Anyone who has any other tax questions this year, please feel free to post them or send me a message. I'm on here almost every day.
I concur with all the pre tax people. I myself have a sec 125 here at work and it is taken out before tax. Edit: and I work at an accounting firm (sadly) so we get this question all the time.
