I received my W-2 form this year and took the time to investigate the meanings of a few strange boxes that allocate my money to shadowy codes and agencies. Purposefully cryptic, these jargon heavy tax codes are designed to keep accountants in business. I will try to state the intention of three codes in simple English. Before I go any further, I should state that I am not an accountant or tax professional.
414H - Your Retirement Plan
This is the definition of the 414(h) tax code:
a retirement plan named after a section of the Internal Revenue Code specifically designed for government - public employees
If you belong to a State backed retirement plan, like the NYS Teachers' Retirement System, a 414(h) contribution will show on your W-2. All public school teachers in NYS belong to this retirement system, allowing us to save money for retirement without paying any taxes on those contributions until the money is withdrawn when you retire. This is a mandatory, pre-tax contribution that reduces your gross income for each tax year.
Depending on your position in the arcane tier structure of the NYSTRS, your 414(h) contributions may or may not be subject to NYS tax. Your contributions are subject to state tax if you are:
- a Tier 3 or 4 member of the NYS and Local Retirement System, which includes the NYS Employees Retirement System and the NYS Police and Fire Retirement System
- a Tier 3 or 4 member of the NYS Teachers and Local Retirement System
- an employee of the NYS or New York City University of New York who belongs to the Optional Retirement Program
- any tier member of the New York City Employees Retirement System, the New York City Teachers Retirement System, the New York City Board of Education Retirement System, the New York City Police Pension Fund or the New York City Fire Department Pension Fund
- a member of the Manhattan and Bronx Surface Transit Operating Authority (MABSTOA) Pension Fund
If you do not meet any of those conditions, your benefit contributions are NOT SUBJECT to NYS income tax. Unfortunately, I'm a young turk in Tier 4, and my contributions are subject to state income tax.
SUI/SDI - Unemployment and Disability Insurance
This is a mandatory contribution that you make each paycheck to the NYS Unemployment and Disability Insurance fund. Your fortunate position as a gainfully employed person allows you to make a very small contribution to a state fund to help the disabled and unemployed. My entire contribution for last year was $31. Having once received unemployment benefits for a period of 6 months, I will never question the small amount I contribute each year for the benefit of those who cannot find work.
IRC 125, aka Cafe 125
This is not the voluntary contribution you make to Starbucks or Tim Horton's each week. No, the Cafe 125 item in your W-2 refers to a flexible spending account (FSA) that your employer has setup to pay your health care benefits. Assuming that you pay some portion of your health care benefit package, you have no doubt noticed that your income is reduced at each paycheck by contributions to your health plan. If you are under IRC section 125, also known as Cafeteria Benefits or the Cafe 125 plan, you make PRE-TAX contributions to your flexible spending account to cover the cost of your medical, dental, and vision plans. The amount you pay into your Cafe 125 account reduces your gross income for the year. The flexible spending account may also be used to cover dependent child care costs.
Your Cafe 125 contributions may be subject to New York State income tax if your employer:
- deducted or deferred the Cafe 125 amount reported on your W-2 from your salary under a flexible benefits program established by New York City or certain other New York City public employers on your behalf.
Unless you work in NYC, you will not pay state income tax on your Cafe 125 benefits.
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Thank you so much for your research and very clear explanation of these confusing codes – I found it very helpful and greatly appreciate you posting this!