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Section 125
All employees enrolled in medical, dental, and supplemental insurance products have deductions taken on a pretax basis.
The one exception is for those enrolled in the voluntary disability benefit. Deductions for that benefit are post-tax, so that any disability benefit you receive from it is not taxable.
What does Section 125 mean to me?
Paying for your deductions on a pretax basis will reflect a lower “taxable earnings” figure on your W2 – and that means you pay taxes on a lower amount – and that usually means less taxes!
In many cases, you see an increase in your take-home pay.
Changes to your benefits are limited to Open Enrollment periods, unless you have a qualified change in family status. The change in benefits must be consistent with the status change. See the Qualified Family Status Change information on page 20 to learn more.
Here’s the math
This is an example of how you may benefit from paying for benefits with pretax dollars. The example is based on a married couple with two withholding allowances in 2006.
Example of Pretax deduction savings |
Pay/Deductions |
Pretax |
Post-tax |
Gross biweekly pay |
$1,250.00 |
$1,250.00 |
Employee pretax HMO premium |
-$105.59 |
$.00 |
Employee pretax DHMO premium |
-$13.20 |
$.00 |
Taxable income |
$1,131.21 |
$1,250.00 |
Federal withholding |
-$69.68 |
-$87.50 |
Social Security withholding |
-$86.54 |
-$95.63 |
Emp. post-tax HMO medical premium |
$.00 |
-$105.59 |
Emp. post-tax DHMO dental premium |
$.00 |
-$13.20 |
Net biweekly pay |
$974.99 |
$948.08 |
Biweekly increase
in take-home pay |
$26.91 |
$.00 |
Annual increase
(24 checks) in take-home pay |
$645.84 |
$.00 |
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