Section 125
Employees enrolled in medical, dental and supplemental insurance products can have deductions taken on a pretax basis, so your money goes further.
Pay lower taxes
Paying your contributions on a pretax basis will reflect a lower “taxable earnings” figure on your W2 – and that means you pay taxes on a lower amount. That usually means you see an increase in your take-home pay!
The one exception is for those enrolled in the voluntary disability benefit. Deductions for that are post-tax, so any disability benefit you receive from it is not taxable.
Here’s an example of how you benefit from paying for benefits with pretax dollars. This example is based on a married couple with three withholding allowances in 2010.
Example of pretax deduction savings |
Pay/Deductions |
Pretax |
Post-tax |
Gross bi-weekly pay |
$1,500.00 |
$1,500.00 |
Employee pretax HMO premium |
-$132.71 |
$.00 |
Employee pretax DHMO premium |
-$13.73 |
$.00 |
Taxable income |
$1,353.56 |
$1,500.00 |
Federal withholding |
-$40.36 |
-$61.83 |
Social Security withholding |
-$83.92 |
-$93.00 |
Medicare withholding |
-$19.63 |
-$21.75 |
Emp. post-tax HMO premium |
N/A |
-$132.71 |
Emp. post-tax DHMO premium |
N/A |
-$13.73 |
Net biweekly pay |
$1,209.65 |
$1,176.98 |
Biweekly increase in
take-home pay |
$32.67 |
$0 |
|
Annual increase in take-home pay |
$784.08 |
$0 |
Stay in the game
If you are enrolled in the medical, dental or supplemental insurance plans and don’t want to make any changes – don’t do anything. Your coverage will remain in effect through April 30, 2011.
|
|