Why Does NYS 414h Get Rejected in New York State Filings?

New York State public employees who contribute to retirement plans often encounter issues when filing taxes, particularly with NYS 414(h) contributions. These pre-tax deductions can lead to confusion and even rejection in state filings, frustrating taxpayers trying to comply with reporting requirements. Understanding why these rejections happen helps avoid errors and ensures a smooth filing process.

Contribution Requirements

Public employees in New York State participating in retirement plans under Section 414(h) of the Internal Revenue Code have mandatory contributions deducted from their wages. These contributions are classified as “picked-up” by the employer, meaning they are treated as employer contributions for federal tax purposes but remain employee contributions for state tax purposes. This distinction affects how they are reported and taxed.

Since these contributions are excluded from federal taxable income, they do not appear in Box 1 of the W-2 form but are included in Box 14, typically labeled as “414(h).” Employees must manually add these amounts back to their New York State taxable income when filing. Failing to do so can result in underreporting income, triggering discrepancies with state tax authorities.

The percentage of wages contributed varies based on salary and hire date. Employees who joined the New York State and Local Retirement System (NYSLRS) on or after April 1, 2012, contribute between 3% and 6% of their gross wages, depending on earnings. Those hired before this date generally contribute a fixed 3%. Employees should verify their contributions against their W-2 forms to ensure accurate reporting.

State Filing Procedures

When preparing a New York State tax return, taxpayers must correctly report pre-tax retirement contributions. The state requires Section 414(h) deductions to be added back to taxable income. This adjustment is made on Form IT-201 for residents or Form IT-203 for part-year residents. Incorrect reporting can lead to processing delays or rejection.

Taxpayers should carefully review their W-2 forms to identify 414(h) contributions in Box 14. Employers may use different labels, so employees must ensure they are adding the correct amount to their state return. New York State does not automatically adjust for these contributions, so failing to include them can result in underreported income and a notice from the Department of Taxation and Finance.

Electronic filing systems often include prompts for this adjustment, but errors can still occur if taxpayers misinterpret instructions. Some tax software does not automatically recognize 414(h) contributions, requiring manual entry. This is particularly relevant for individuals using free filing options, which may provide less guidance than paid versions.

Potential Rejection Scenarios

One common reason for rejection is discrepancies between employer-reported data and what the taxpayer enters on their return. The New York State Department of Taxation and Finance cross-references W-2 information with reported income, and any inconsistencies—such as failing to include an adjustment when required—can trigger automated verification checks. If the system flags a mismatch, the return may be rejected or sent for manual review, delaying processing.

Another issue arises when taxpayers work for multiple public employers in a single year. Each W-2 may list separate 414(h) contributions, and these amounts must be correctly aggregated and reported as a single adjustment. If not, the state’s automated systems may detect underreported income, prompting an error message or rejection.

Certain tax preparation software can also contribute to filing errors. Some platforms provide clear guidance, while others may not automatically prompt users to make the required addition. If a taxpayer relies on software that does not properly account for these contributions, they may inadvertently submit an incomplete return. This is particularly problematic for those using simplified filing options, which may lack necessary prompts or explanations.

Reporting on Tax Forms

Accurately reflecting NYS 414(h) contributions on tax forms requires understanding how they interact with state-specific income modifications. New York’s tax code distinguishes between federal adjustments and state-specific reporting requirements, meaning taxpayers must correctly categorize these contributions to avoid miscalculations that could affect their taxable income bracket or eligibility for certain deductions and credits.

A common issue arises when taxpayers incorrectly classify these contributions under income modification codes on Form IT-225, which is used for various additions and subtractions to state income. While IT-201 and IT-203 handle standard wage reporting, IT-225 is necessary when multiple income adjustments apply. Misreporting on this form can affect eligibility for tax benefits such as the New York State Earned Income Credit, which is based on adjusted federal income rather than state-modified figures.

For employees subject to wage garnishments, child support obligations, or other payroll deductions, proper 414(h) reporting is even more important. Since these contributions reduce federal taxable wages but not state wages, an incorrect state return could misrepresent disposable income calculations used by agencies enforcing these obligations. This can lead to compliance discrepancies, requiring corrections that may involve amended tax returns or legal documentation.