What About My Health Insurance Premium Contributions?
In addition to tax savings from medical and dependent care expenses, you may save taxes on your
contribution to the health insurance premiums under your employer-sponsored group health insurance
plans. The tax advantages work the same as the medical and dependent care reimbursement plans.
This opportunity to redirect your required premium contributions also allows for additional tax savings!
How Do Salary Reductions For Group Health Plan Premiums Work?
You simply elect to reduce your compensation by an amount equal to the required health and/or
dental insurance contribution for the coverage you are electing (for yourself or your family). Your
employer then agrees to provide you with the health and/or dental insurance coverage you have
elected.
If you elect not to participate in the health insurance plans, you will receive your full compensation in
lieu of making a salary reduction and receiving health benefits. You may elect not to participate in the
salary reduction options and have your contributions taken on an after-tax basis if you prefer. You
must communicate this preference to your employer.
If you elect to participate in the pre-tax premium salary reductions (as most employees do), your
health plan coverage elections become irrevocable for the Plan Year, just as your FSA elections do.
If you pay your portion of your health plan premiums on a pre-tax basis, then your coverage elections
may not be changed unless you experience a qualified status change or other special exception to the
irrevocability rules.
How Do I Sign Up?
Your employer’s group insurance contribution form offers you the option to pay for premiums on a pretax
basis. Simply read and sign the contribution form and your premium contributions will
automatically be redirected to pre-tax salary reductions. You will save additional income taxes and
payroll taxes on these premiums. If you prefer to pay your health plan premiums on an after tax
basis, you must advise your employer of this in writing.
Do I Need To Sign Up Every Year?
Unlike the Medical and Dependent Care elections, your election to pay for premium contributions on a
pre-tax basis is a perpetual election. You do not need to re-authorize your pre-tax salary election
each year, unless you want to change your election. Any change in required employer contributions
for your health plan coverages will automatically change your pre-tax salary reductions.
Are There Any Negatives?
The salary reductions for premiums reduce your taxable compensation, which is how you save taxes.
This reduction may cause a reduction in your taxable wages for Social Security and other wage-based
insurance or benefit programs. Generally, only employees who are retirement age or whose gross
household wages are relatively low will consider opting out. In most cases, the tax savings are
substantial enough to offset any slight reduction in social benefit programs.
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