Do teachers pay tax on state medical benefits?

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Q. I am a public school teacher who has weekly deductions from my paycheck as my portion for state mandated health insurance payments. These payments are listed on my W-2 for my federal tax information as non-tax contributions. However, it seems that New Jersey is including these payments in my state taxable income. If so, can these payments be deducted on my state return and if so, where?
— Teacher

A. Great question.

In New Jersey, each school district negotiates the health insurance benefits it will provide for teachers with the local teachers’ union, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

Accordingly, some districts will charge teachers a portion of their health benefit costs, while other districts will not. Your premium and out-of-pocket expenses will be determined by the school district you work for, he said.

“If your school district pays 100 percent of your medical insurance premiums it is completely tax free to you,” Kiely said. “You would not be eligible for any tax deductions.”

But if your district requires you pay part of your medical insurance premiums, the premiums will not be included in Box #1 “Wages, tips, other compensation” for federal purposes, Kiely said.

The premiums may be included as income in Box #16 “State wages, tips etc.” for New Jersey purposes, Kiely said.

“New Jersey allows you to deduct medical expenses to the extent they exceed 2 percent of your income,” he said. “Medical insurance premiums are part of medical expenses.”

So, you would include the W-2 box #16 state income on line #15 of your NJ-1040, Kiely said. And on line #31 of your New Jersey return, you would put down your medical expenses that exceed 2 percent of your income that’s reported on line #29, he said.

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This story was originally published on April 12, 2019.

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