Is my health insurance pre-tax?

Almost always, when you elect it through the employer's cafeteria plan. After-tax COBRA premiums are post-tax.

Does Section 125 reduce my FICA?

Yes. Section 125 deductions reduce both federal income tax wages and FICA wages. This is rare, most pre-tax deductions only reduce income tax wages.

Can I have HSA and FSA?

Limited Purpose FSA (dental and vision only) can co-exist with HSA. General-purpose FSA disqualifies HSA contributions.

What happens to FSA at the end of the year?

Use-it-or-lose-it, except many plans offer a small carryover (up to ~$640 in recent years) or a grace period.

Health Insurance Deductions on Your Paycheck

Most US employer-sponsored health insurance is paid for via pre-tax payroll deductions under Section 125 of the tax code. The deduction reduces both federal income tax wages and FICA wages. Here is how the pieces fit.

PayslipIQ provides educational information and estimated calculations only. It does not provide tax, legal, financial, accounting, employment, benefits, or payroll advice. PayslipIQ is not a CPA firm, law firm, financial advisor, payroll provider, or tax authority. Always verify your paycheck, deductions, withholdings, and tax position with your employer's payroll department, a qualified CPA, the IRS, your state tax authority, or another appropriately qualified professional. Calculations are estimates; your actual paycheck may differ based on factors specific to your employer, location, benefits elections, and personal tax situation.

Section 125 cafeteria plan

The legal vehicle that lets employers pre-tax health, dental, vision, FSA and HSA premiums. The "cafeteria" name comes from employees picking benefits from a list. Section 125 deductions reduce both income tax wages AND FICA wages, which is rare.

Common pre-tax health lines

Medical premium (employer-sponsored health insurance employee share)
Dental premium
Vision premium
HSA contributions (only under cafeteria plan; outside-payroll HSA is post-tax-then-deductible)
Health FSA
Dependent Care FSA (separate annual limit, separate purpose)

What they save you

Pre-tax means lower federal income tax wages, lower FICA wages (rare), lower most state income tax wages. For a $200/month medical premium at a 22 percent federal bracket plus 7.65 percent FICA plus 5 percent state, the pre-tax savings are roughly 35 percent. So $200 of pre-tax premium costs about $130 in net pay terms.

HSA

Available with a High Deductible Health Plan (HDHP). Annual limit set by the IRS. Funds roll over indefinitely. Tax-free for qualified medical expenses. Investable once balance crosses a threshold.

FSA

Available with most plans. Annual limit lower than HSA. Use-it-or-lose-it (with limited carryover or grace period in some plans).

Limited Purpose FSA

Restricts FSA use to dental and vision so it can co-exist with HSA.

Dependent Care FSA

Different account for childcare or adult-care expenses. Separate limit.

Common pay stub labels

MED, MEDICAL, HLTH, DEN, VIS, HSA, FSA, DEP CARE.

Frequently asked questions

Is my health insurance pre-tax?: Almost always, when you elect it through the employer's cafeteria plan. After-tax COBRA premiums are post-tax.
Does Section 125 reduce my FICA?: Yes. Section 125 deductions reduce both federal income tax wages and FICA wages. This is rare, most pre-tax deductions only reduce income tax wages.
Can I have HSA and FSA?: Limited Purpose FSA (dental and vision only) can co-exist with HSA. General-purpose FSA disqualifies HSA contributions.
What happens to FSA at the end of the year?: Use-it-or-lose-it, except many plans offer a small carryover (up to ~$640 in recent years) or a grace period.