Employees' Fringe Benefits

Certain types of fringe benefits that you may receive from your employer have been singled out for special treatment by the IRS.

If you received these benefits during the year, your employer must determine the amount that it expects to be deductible on your tax return, and does not include that amount in your taxable wages as reported in Box 1 of your W-2 Form. However, you will have to report the amount separately, somewhere else on your tax return.

The benefits to which this applies are:

• Dependent care benefits — if your employer reports these in Box 10 of your W-2, you must file IRS Form 2441, Child and Dependent Care Expenses, to determine whether you can exclude the full amount from your taxable income.
• Adoption benefits — if your employer reports these in Box 12, code T, you must file IRS Form 8839, Qualified Adoption Expenses, to determine whether you can exclude the full amount from your taxable income.
• Employer's contributions to an Archer medical savings account (MSA) — if your employer reports these in Box 12, code R, you must file IRS Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, to determine whether you can exclude the full amount from your taxable income.

If any of these benefits apply to you, you will have to complete the applicable form to determine whether some of the benefit amount might have to be added back in to your taxable income on Line 7 of Form 1040 or 1040A.

There are a number of other items that may have to be included in your total on Line 7. These are discussed in more detail below.

Excess salary deferrals. If an employee makes an elective deferral to a 401(k) plan, the entire amount (including any excess over the annual deferral limit) is reported in Box 12 of your W-2 with code D. Any voluntary after-tax contributions may be reported in Box 14, although this is optional. (If your plan was a tax-sheltered annuity plan or an eligible plan of a state or local government or non-profit organization, a higher limit may apply. Contact your employer if you have questions about your plan, or see IRS Publication 575, Pension and Annuity Income, for details.)

Corrective distributions. If too much of your salary was withheld or contributed to a retirement plan (other than an IRA) and your employer corrected the amounts, the corrections should have been reported to you on Form 1099-R, and you must include the amounts that were repaid to you on Line 7 of Form 1040 or 1040A.

Disability pensions. If you received a disability pension reported on Form 1099-R and you have not reached the minimum retirement age set by your employer, report the amount on Line 7. Otherwise, pensions are reported on Lines 16a and 16b of Form 1040, or Lines 12a and 12b of Form 1040A.

Back pay awards. If you received a settlement or a judgment for back pay, it should be reported to you on a W-2 Form and included in the total on Line 7 of Form 1040 or 1040A. The taxable amount can include damages, unpaid life insurance premiums, or unpaid health insurance.

Severance pay. Severance pay is taxable compensation and should be reported on Line 7 of Form 1040 or 1040A. Also include any amounts you receive to compensate for cancellation of an employment contract.