Health Benefit Premium Deductions?

Question

Hi All,

I work in NJ for a small company. My employer provides me with Health insurance and I pay 20% of the cost each month. Recently I noticed that my employer is deducting this amount from my after tax salary. I talked to a couple of my friends and their health premiums get deducted before taxes are applied, so they do not have to pay taxes for that much amount.

I want to go talk to my employer and let him know about this. Should my employer also be deduction my premiums before my salary is taxed? Is there any rules which states this? Any references to link/websites will be greatly appreciated!

Answer 1

By all means, you should inform your employer of this option. What you're talking about is a "cafeteria plan" or a section 125 plan. Usually, smaller employers only take advantage of POP (premium only plans,) but in fact it is possible to shelter all kinds of costs using this vehicle. Possible options are day care, group health, dental, personal medical/dental expenses (like radial keratotomy or dental implants,) group legal insurance, life insurance, death and disability insurance, etc. If cost is an issue, have your employer contact AFLAC for information on their program. I don't remember the specifics, but there are limits of deductibility in conjunction with 401(k) plans and other qualified plans. This product not only helps the employee (between FICA and income taxes (state, local, and fed,) the employer gets to save money in FICA; they get to pocket the 7.65% employer share for every buck that goes to such deductions. As a final note of caution, employees taking advantage of such plans are usually on board for a full plan year. If you decide you don't want your health insurance any more, you might have to wait up to a year to discontinue it. Another potential problem is that it is another bureaucratic obstacle of doing business, another tax return for the company, another account payable, and sometimes the employer can be on the hook for uncollected costs (only true for employee reimbursement options.)

Answer 2

I don't know what the rules are, but I know that my health insurance premium contribution is deducted pre-tax and since Bush's recent health care proposal is designed to put people who buy their own insurance directly (with after-tax money) on equal footing with those who buy it through their employer with pre-tax money, I assume that means that at most companies, the premiums are deducted pre-tax. So it certainly sounds like you've got a legitimate complaint. Hopefully someone can provide you with a law/rule that you can use to support your claim.

Answer 3

Your employer is allowed to deduct health insurance premiums you pay on a pre-tax basis. You have to sign a salary reduction agreement in order for him to do this.

Ask him if he will do this. It doesn't cost him anything and saves you taxes.

See IRS Publication "Employer's Tax Guide to Fringe Benefits"

http://www.irs.gov/publications/p15b/index.html