Pre-Tax vs. Post-Tax Deductions
You may elect to have certain insurance premiums deducted from your pay on a pre or after-tax basis In accordance with Section 125 of the Internal Revenue Code. Pre-tax elections are irrevocable within the calendar year for which they are made unless you experience a Mid-Year Qualifying Event.
- Insurance premiums are deducted from your gross pay before Medicare, Federal, and State taxes are calculated thus reducing your tax liability.
- The impact of pre-tax deductions for insurance premiums and Flexible Spending Accounts (FSA) on your retirement plan depends on whether you are enrolled in the DCP or PERA.
- DCP: not affected by pre-tax deductions.
- PERA: amounts deducted on a pre-tax basis for insurance premiums and FSA’s are not considered “inclusive salary” for reporting purposes to PERA and may affect your retirement highest average salary calculation. These amounts reduce your salary reported to PERA and the resultant employee and employer PERA contributions are adjusted accordingly. Contact PERA for more information on how this may affect you.
- When long-term disability premiums (LTD) are paid with pre-tax dollars, the monthly disability benefit becomes taxable income.
Insurance premiums are deducted from your pay after Medicare, Federal, and State taxes are calculated and do not reduce your taxable gross salary. There is no impact on your retirement plan and your monthly income replacement benefit under LTD is not taxable.
Insurance Premiums and FSA Tax Status
- Personal Accident (AD&D)
- Voluntary Life
- Short Term Disability
- Flexible Spending Accounts
Pre- or Post-Tax
- Long Term Disability