Tax Preparation for Educators
Educators face special challenges when filing tax returns. There are many items from an educator's W-2 that differentiate them from other clients. As a former educator myself, I am well aware of these items and how to deal with them in filing your taxes.
Items on Educator's W-2
403B/TDA Contributions
403B refers to the tax code which deals with public sector employees. A 403B is equivalent to a 401K in the private sector. It is a tax deferred option for those in the public sector. You choose to have a portion of your salary withheld and put into an account for your future use. For New York City educators, it is known as the TDA or Tax Deferred Annuity. You will find the amount of your 403B contribution in box 12 of your W-2 with a code of E.
The amount of your contribution is NOT taxable in the year made. You will be taxed when you withdraw this money down the road. There are many rules about when you can and can't withdraw money, but anything prior to age 59 1/2 might be subject to a penalty depending on your situation.
If you look at the difference between Box 1 on your W-2 (Taxable Wages) and Box 3 (Social Security Wages), you are likely to find the amount of your 403B contribution.
Employer Paid Health Insurance Premiums
Many educators enjoy the benefit of Health Insurance provided by their employer. While some contribute to the total, some do not. In either case, your employer is required to report the amount of the premium paid on your behalf. This can also be found in box 12 of your W-2 and has a code of DD.
If you make no contribution towards your premiums, there is nothing for you to do with this information for Federal purposes. Some states require you to have health insurance or face a penalty. In these states, having that DD in box 12 allows you to check the box that you (and your family, if applicable) are covered for the year.
Pension Contributions
Most public sector educators are participants in a pension plan. In New York State, you can find deductions for 414h, IRC125, 457 and others. These can be found in box 14 on your W-2 and are dealt with slightly differently.
Some of these deductions are taxable within the state while others are not. Detailed knowledge of these deductions allow us to file your taxes accurately.
Union Dues (not on W-2)
When the Tax Cuts and Jobs Act (TCJA) was enacted, the standard deduction was increased greatly. One of the casualties was the elimination (on the Federal level) of Miscellaneous deductions of which Union Dues was one category. Therefore, Union Dues are not able to be deducted on your 1040 return.
Several states do allow you to deduct Union Dues. For instance, in New York, there is a Miscellaneous deduction category. Even if you don't qualify for the deduction New York gives you credit for your Union Dues, but only if you are already itemizing deductions.
Union dues are NOT listed on your W-2 so you should save a copy of your final pay stub of the year as this has any additional deductions that are not reflected on your W-2.
Educator Expense (not on W-2)
The federal government recognizes that teachers spend their own money to supplement the materials in the classroom. To that end, teachers are given what is called an "above the line" deduction for up to $300 of money spent for items used in their classrooms.
This means that the amount you report as having been spent, up to $300, is taken off your taxable income before other adjustments are made.
According to the IRS,
You're an eligible educator if, for the tax year you're a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.
There are some restrictions as to who may claim these expenses, but most teachers are eligible.
We at Michael D Frank, Accounting are intimately familiar with all of the above and more. Educators should have tax preparers who know the ins and outs of what makes an educator special.
