Federal and state income aren’t a match on this W-2. Why?

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Q. My wife’s W-2 income for federal income and state income do not match. State is higher. We are on Medicare, so there are no insurance premiums and we have no 401(k) deductions. Why don’t the numbers match?
— Filing tax returns soon

A. Glad to see you’re paying attention to withholding on your wife’s paychecks.

New Jersey taxes several items that are excluded for federal purposes.

Consequently, employees will often notice that the state wages box of Form W-2, Box 16, is higher than the wages box used for the federal return, Box 1, said Cynthia Fusillo, a certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.

She said New Jersey does not follow the federal treatment for the excludability of so-called cafeteria plans, such as Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs) and Dependent Care Assistance Plan (DCAP), under Internal Revenue Code 125.

Contributions to these types of plans are federally excluded from wages but are added back to New Jersey state wages, she said.

Salary deferrals to retirement plans other than to 401(k) plans will be includable in your New Jersey wages, she said.

There are some other differences when you file your federal and New Jersey returns.

For example, certain meals and lodging that are not taxed for federal purposes may be taxed by New Jersey.

“Reimbursement for certain moving expenses are excludable both for federal and New Jersey, but others will be taxed by the state,” Fusillo said. “To be excludable, moving expense reimbursements must be for the cost of moving your household goods and personal effects from the old home to the new home, and the actual expenses you incurred for traveling, meals, and lodging when moving yourself and your family from your old home to your new home.”

So, check and see if your wife has any of the above listed items as that would explain the difference she sees on her own W-2.

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This story was originally published on Feb. 26, 2020.

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