(b)lines Ask the Experts – 403(b) Contributions and Tax Reporting

“Is there anything special that I need to take into account with respect to my 403(b) contributions and tax reporting?”  

Michael A. Webb, Vice President, Retirement Practice, Cammack LaRhette Consulting, answers:  

Good question! First of all, before the Experts respond, we need to say that we are NOT tax advisers, and nothing we say here should in any way be construed as a substitute for the advice of a competent tax adviser. However, we can provide some general information.    

In many situations, those who contribute to their 403(b) plan do not encounter any additional complexities in filing their federal income tax returns. The reason for this is that pre-tax elective deferrals to a 403(b) plan are already properly reported on an individual’s Form W-2 statement of wages as being excluded from an employee’s federally taxable income. Thus, if the W-2 information is entered correctly into an individual’s tax return, no special treatment of the 403(b) deferral is required. The same is the case for Roth 403(b) contributions as well, since the Form W-2 would properly report these contributions as include in taxable income.    

For state tax returns, the same process should apply. However, there are a few states (New Jersey and Pennsylvania come to mind) where 403(b) elective deferrals ARE subject to state taxes and are thus included in state taxable income. Thus, if you file a tax return for these states, you may wish to consult with your tax adviser as to the proper reporting of 403(b) deferrals, since your W-2 may not correctly reflect the state taxation of such deferrals.   

And, of course, not everyone’s individual tax filing situation is the same, and there are special circumstances (excess deferral to a 403(b) plan in 2011, distribution from a 403(b) plan in 2011, special tax rules that may apply to clergy for 403(b) plan contributions/distributions, to name a few) that may apply to certain 403(b) plan participants. Of course, your tax professional should be able to work with you regarding any special tax situations you may have.   

Good luck with filing your tax returns! As a reminder to all, since April 15th falls on a Sunday this year, and April 16th is a Holiday in the District of Columbia, you have until April 17th to file your individual tax returns this year, unless extended.