Code DD

[Christian]

A client has come in wanting to deduct some $11,000 plus in employee health care premiums.She got this amount from her husbands W-2 which clearly shows it under code DD in box 12a. As indicated on the W-2 this amount is not taxed. I can find nothing indicating the premiums are deducted through a Cafe 125 plan but it would appear these are deducted pretax and are therefore not eligible medical expenses reported on Schedule A. Any input would be appreciated.

[Richcpaman]

Code DD is for the amounts that the EMPLOYER paid for the employee's health insurance.

Rich

[Christian]

That was my understanding as well Rich. On reading at the IRS site it indicates that the employee contributions be included. His taxable W-2 earnings are reported some $1500 less than his FICA wages. There is no contribution to a 401-k or any employee savings plan. I'll have to discuss this matter at some length with her as it looks to be problematic.

[MsTabbyKats]

That was my understanding as well Rich. On reading at the IRS site it indicates that the employee contributions be included. His taxable W-2 earnings are reported some $1500 less than his FICA wages. There is no contribution to a 401-k or any employee savings plan. I'll have to discuss this matter at some length with her as it looks to be problematic.

Very easy to explain....

This is a "tax free" benefit....you aren't paying tax. It's on the W-2 for informational purposes only.

Since you don't pay tax.....you cannot deduct it,

You can only deduct things from your taxable income that you have paid tax on.

[Lynn EA USTCP in Louisiana]

Have the client bring you the final paycheck stub. Dollars to donuts it shows the employee's share of health insurance, deducted pre-tax.

[BulldogTom]

Code DD is for the amounts that the EMPLOYER paid for the employee's health insurance.

Rich

Not so fast Rich. That is the total amount of the cost of the policy, both the employer and employee portions. Whether it is pre tax or post tax will take some digging, but the amount in box 12 is not exclusively the employer paid portion. In general, most employers will have a salary reduction arraignment in place and the employee portion is pre-tax, but not always. A copy of the check stub and working your way back through the math on the SS taxes wilthheld can usually find the answer for you.

Tom

Hollister, CA

[MsTabbyKats]

Not so fast Rich. That is the total amount of the cost of the policy, both the employer and employee portions. Whether it is pre tax or post tax will take some digging, but the amount in box 12 is not exclusively the employer paid portion. In general, most employers will have a salary reduction arraignment in place and the employee portion is pre-tax, but not always. A copy of the check stub and working your way back through the math on the SS taxes wilthheld can usually find the answer for you.

Tom

Hollister, CA

It might be easier to ask the employer.

[Christian]

That is why i come to this board. For enlightenment . Aieeeeeeeeeeeeee chi wah wah !

[Terry D EA]

Just did one of these the other day. The employees portion is included under the DD code. It is necessary to ask and verify if the amounts the employee paid are pre-taxed or not. If it is, then no deduction.

[Jack from Ohio]

For the record, the amounts listed with Code DD are only those run through a 125 or café plan. Period. It includes BOTH employer and employee contributions, but ONLY if through a café or 125 plan.

If the employer give the employee money to help the employee pay his premiums, box 1 of the W-2 must be ramped up to show the amount.

Therefore, the number shown in box 12 with code DD is ALL PRETAX and does NOT go on the tax return ANYWHERE.

Next tax year, that will not be the case.

[David1980]

Just did one of these the other day. The employees portion is included under the DD code. It is necessary to ask and verify if the amounts the employee paid are pre-taxed or not. If it is, then no deduction.

I think if I asked the taxpayer, the taxpayer would be sure those were paid after tax and should be deducted. Just like when they get a 1099-R and know it's not supposed to be taxable because they already paid the tax. I don't put much faith in the taxpayer. I could try asking the employers but most of them are either big enough to make that painful or too small to know what the heck they reported - they let the tax person do it.

[Jack from Ohio]

If it is coded DD, none of it is deductible.

http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

[Tax Prep by Deb]

I agree with Jack's earlier statement. The code DD is to get us ready for what will happen when we prepare the 2014 tax return and have to figure the penalty or not for the affordable care act. This figure will be important to us next year but has no effect on us this year.

[Christian]

Thanks to all of you. I finally turned it over to the client and his employer simply advising to provide me a correct deductible amount if any as the coded DD amount is NOT deductible.

[BulldogTom]

I agree with Jack's earlier statement. The code DD is to get us ready for what will happen when we prepare the 2014 tax return and have to figure the penalty or not for the affordable care act. This figure will be important to us next year but has no effect on us this year.

Not to stray too far from the original post, but with all the exempt companies (those with less than 50 employees) out there, there is no way, as Obamacare is currently written, that the DD code can be used for a source document for any tax law. It is just not required to be calculated by all employers at this time. And it does not break out the level of plan that the employee has selected, so it cannot be used for determining whether the plan is "affordable". Also, it is an option to include dental coverage in the DD number. You don't have to, but you can.

For example, I can select any of 12 plans at my day job. Only 1 of those plans is considered "affordable" for every employee in the company. It meets the minimum requirements under the law and is priced "affordably" according to our insurance broker who did the analysis. Almost no one in our company selected that policy. We also include dental insurance in the DD number calculation on the W2. Our company does not contribute to the dental plan, the employees pick up 100% of that cost under a salary reduction agreement. If you don't know this as the preparer for anyone in our company, how can you work with the number?

What I am saying is that the DD code does not, will not, and can not give us any information that will be useful in calculating the penalty tax next year. Maybe they will tweek the law, but not in time for next tax season, as payroll is already going out for next year's returns. That DD number cannot be made useful for any year before 2015 tax returns, but most likely, not until 2017, to give all employers time to comply.

Tom

Hollister, CA

[Tax Prep by Deb]

I think 2014 tax preparation is going to be real fun!

I can hardly wait!

[Don in Upstate NY]

I'm retired, but I get a W2 from my previous employer for the imputed income due to group life insurance. The W2 shows $28 income in boxes 1, 3, and 5, zero in boxes 2,4, and 6, $2 FICA due in box 12 [code M], and $4,800 in box 12 code DD.

[Richcpaman]

I client just called me.

Worked FOR a major firm. Laid off in Nov 2012.

Paid COBRA in 2013 to former employer.

Former employer sent her a W-2 with no wages in Box 1, 3 o4 5. Only Box 12 Code DD for $4,400 in COBRA she paid to employer..

Wow.

Maybe its what they should be doing. But just wow.

Rich

[TAXMAN]

Now what to do with that cobra?

[Catherine]

Now what to do with that cobra?

Get a flute and charm it? Don't neglect the turban, though.

[Max W]

If it is coded DD, none of it is deductible.

http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

That is assuming that the employer got it right and did not include after tax deductions.

[kcjenkins]

Probably 50/50 odds