Double Health Insurance Deductions under Cafe 125 Plan - Can the Full Amount Be a Deduction?

The W-2 should only show the correct, agreed-upon amount for the Cafe 125 plan (Section 125 plan), not the error amount. Your sister-in-law's employer made an administrative error by taking double payments, but that doesn't make the excess a legitimate Section 125 deduction. Here's what should happen: The employer needs to refund the excess withholding AND correct the W-2 if they've reported incorrect wages. The correct health insurance premium amount reduces her taxable wages appropriately, but the excess withholding was essentially taken in error and should be returned to her. As for deducting the health insurance premiums elsewhere - since they were already taken pre-tax through the Cafe 125 plan, they can't be deducted again. That would be double-dipping. However, the excess amount that was incorrectly withheld isn't technically a Section 125 deduction at all - it's an accounting error that needs correction.

After dealing with a similar issue with my health insurance deductions on my W-2, I discovered taxr.ai (https://taxr.ai) which helped me understand exactly what was going on with my Section 125 deductions. They analyze your pay stubs and tax documents to show where discrepancies might exist. I uploaded my W-2 and a few paystubs, and their system flagged the exact issue - my employer had been taking out the wrong amount but reporting something different on my W-2. The analysis gave me detailed notes explaining how Section 125 cafeteria plans should work and exactly what I needed to ask my HR department to fix.

Just wanted to follow up - I took the advice and tried taxr.ai after posting my question about my HSA contribution errors. The system actually detected that my employer had miscoded my contributions and was treating them as regular Section 125 deductions rather than HSA-specific ones. The report gave me the exact IRS references to show my payroll department, and explained why the coding matters for tax purposes. I brought the documentation to my HR director yesterday and she immediately understood the issue (after months of confusion). They're issuing a corrected W-2 next week. Honestly wouldn't have known what to ask for without the specific analysis.

If your SIL is getting nowhere with her employer, she should consider using Claimyr (https://claimyr.com) to actually speak with an IRS representative about this issue. I had a similar problem last year where my employer wouldn't correct my W-2, and I needed guidance on how to properly report it. I spent weeks trying to call the IRS directly but could never get through. Then I tried Claimyr and had a callback from the IRS within 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly how to document the discrepancy and what forms to file. They also sent a notice to my employer which suddenly made HR very responsive to fixing the issue.

I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was so frustrated with my own Cafe 125 situation that I decided to give it a try anyway. Within 2 hours of trying the service, I was on the phone with an actual IRS representative who explained exactly how to handle my situation. They confirmed that when an employer incorrectly withholds Section 125 funds, I needed to resolve it with the employer first, but they gave me specific documentation requirements and advised me on how to file if my employer continues to refuse the correction. For anyone dealing with these complicated Cafe 125/Section 125 issues - being able to actually speak with someone at the IRS who knows the regulations is invaluable.

I work in payroll and wanted to give the employer perspective on this issue. Sometimes the Cafe 125 amount on W-2s shows only the health insurance premium portion that's eligible for pre-tax treatment, not the entire withholding. If they truly took double payments in error, the excess amount technically isn't a Section 125 deduction at all - it's an accounting error. The employer absolutely should refund this money, but including it in Box 14 under Cafe 125 would actually be incorrect.

I'm confused about something - if the employer took the money pre-tax but then only reported half of it as Cafe 125, wouldn't that mean her W-2 wages are wrong? Like they reduced her pay by the full amount but only gave her tax benefit for half?

This is a frustrating situation that unfortunately happens more often than it should. Based on what you've described, there are really two separate issues here that need to be addressed: 1. **The W-2 reporting**: If your sister-in-law's paystubs show the full double amount was deducted pre-tax, but her W-2 only shows half in the Cafe 125 box, then her taxable wages are likely incorrect. She's essentially being taxed on money she never actually received. 2. **The refund**: The employer owes her a refund for the excess premiums they incorrectly withheld. Since it's already February and they've been unresponsive since October, I'd suggest a multi-pronged approach: - Document everything: Keep copies of all paystubs, communications with HR, and the current W-2 - File her taxes based on the W-2 she received (the IRS matches returns to W-2s) - Continue pursuing the employer for both the refund AND a corrected W-2 if needed - Consider escalating within the company (beyond HR to senior management) - If they remain unresponsive, file a wage complaint with your state's Department of Labor The key thing to remember is that this isn't really a tax deduction issue - it's an employer payroll error that needs correction at the source.