What Does It Mean if Medical Expenses Are Pre-Tax?

Pre-tax medical expenses lower taxable income, reducing payroll and income taxes, while post-tax plans offer flexibility and itemized deductions. Understanding these distinctions helps optimize financial and health coverage decisions tailored to individual needs.

By Douglas Wade, Attorney

Email | Call (800) 484-4610

Have a quick question? We answered nearly 2000 FAQs.

Table of Contents

1. What are pre-tax medical expenses?

2. Medical premiums before taxes: what are they?

3. Deductions for premiums paid before taxes

4. Post-tax health insurance premiums

5. Deductions for premiums paid after taxes

6. In summary

What are pre-tax medical expenses?

When creating a monthly budget, health insurance premiums are typically among the biggest items for both employers and employees.

As the cost of health care keeps going up, people are actively searching for ways to reduce their spending. Health insurance premium tax credits are one option for this.

Whether your health insurance premium is pre- or post-tax makes a difference in whether or not you may claim a tax benefit.

Here we’ll go over the ins and outs of medical premium tax deductions, including how to take advantage of both the pre- and post-tax versions.

Medical premiums before taxes: what are they?

Let us begin by discussing health insurance prices before taxes. A pre-tax medical premium is the portion of your health insurance premium that your employer sets aside before withholding income or payroll taxes. They then pay this amount to the insurance provider on your behalf.

Subscribing to your employer-sponsored health insurance plan is a requirement for making premium payments using pre-tax dollars.

The following are examples of employer-sponsored programs that allow for pre-tax premiums:

Comprehensive health insurance plan
Additional/optional health insurance
Investments in health savings accounts, flexible spending accounts, and other similar programs
Employer-sponsored medical insurance premium reimbursements

By referring to your pay stub, specifically the “Deductions” or comparable column, you may verify if your health premiums are pre-tax. This is the amount before taxes that you will owe on your health insurance premium if your employer withholds it from your paycheck.

A health reimbursement arrangement (HRA) is one example of a tax-free employee benefit that your business could provide. Employers are not required to pay into health reimbursement accounts (HRAs), but anybody with minimal essential coverage (MEC) can get their money back tax-free for qualified medical costs.

Deductions for premiums paid before taxes

Having your health insurance premiums withdrawn from your paycheck before taxes is a great financial move. Insurance premium contributions can be pre-taxly withheld from your paychecks if your company establishes a premium-only plan (POP) or a Section 125 cafeteria plan.

You can reduce your taxable income and payroll taxes by as much as 40% if you set aside a portion of your salary for a pre-tax health benefit. Additionally, federal, state, and municipal income taxes, as well as Medicare and Social Security taxes, do not apply to pre-tax medical premiums.

Additional ways to lower your tax liability include taking advantage of tax deductions, credits, and exclusions. Although they vary somewhat, all three of these subsidies provide substantial benefits. Credits lower your tax liability, while deductions and exclusions lower your taxable income.

Post-tax health insurance premiums

What follows is a discussion of medical premiums after taxes. Medical premiums paid after taxes may be deductible if you aren’t eligible to join in your company’s pre-tax plan or if your employer doesn’t have one.

After taxes, you will still owe for medical expenses including copayments, prescription charges, and payments made before your deductible, unless you have an approved healthcare spending account.

Personal health insurance policies that are eligible for post-tax premium subsidies include:

Comprehensive health coverage, like a policy purchased via the Health Insurance Marketplace
Optional or supplemental policies, such those for accidents or disability

With after-tax coverage, you may cancel at any moment; this is a smart choice if you want to switch plans midway through the year during a special enrollment period or if you expect to lose coverage altogether.

Deductions for premiums paid after taxes

Savings from after-tax plans are distinct from those from pre-tax premiums, although they are still possible. When you file your taxes, you may still claim premiums as an itemized deduction for all medical expenditures and costs that surpass 7.5% of your income. Schedule 1 for Line 162 on Form 1040 allows most self-employed taxpayers, including company owners, to deduct health insurance premiums.

When your employer withheld your premium payment from your paycheck, you had earned a tax benefit; hence, you are not eligible for this credit if you paid your premiums using pre-tax money. All of your premiums are tax-free when you choose the pre-tax option, so you get the full advantage of the tax benefit. Furthermore, if you are qualified for a pre-tax health plan via your employer but choose not to participate, you will not be able to deduct the cost of your insurance premiums.

HRAs provide tax advantages with post-tax adaptability.
Health reimbursement accounts (HRAs) help both businesses and employees save money on medical expenses. Each month, your company will deduct a certain amount from your paycheck to cover your healthcare costs.

A qualified small employer health reimbursement arrangement (QSEHRA) or an individual coverage health reimbursement arrangement (ICHRA) allows you to pay for your own health insurance plan. After that, up to the predetermined limit, your employer will pay for your health insurance premiums and any other qualified out-of-pocket costs.

With MEC, you may enjoy the same tax advantages as with a regular pre-tax plan, including tax-free payments for medical treatment. Put simply, when employees get their money back through the HRA, they don’t have to worry about taking a tax deduction for it.

Also, you will be eligible for the advantages of a post-tax plan. The Health Insurance Marketplace and the private exchange both allow you to pick the plan that suits your requirements the best. You are free to quit job without losing access to your insurance plan as long as you have an HRA. Unfortunately, unlike health savings accounts (HSAs), contributions to a health reimbursement arrangement (HRA) remain with the employer even after you leave.

In summary

You can save money on income and payroll taxes by paying for your health insurance premiums before taxes if your company has a plan that covers them. Although you’ll be subject to higher taxes, you’ll have greater freedom with an individual plan. With a health reimbursement arrangement (HRA), you may choose a plan that suits your needs and yet earn money back tax-free.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment

Most recent blogs:

What Is a Pay Stub and Why It Matters for Employees and Employers

Pay stubs detail wages, deductions, and taxes, helping employees track earnings and employers comply with state payroll regulations. They support loan applications, reduce payroll disputes, and are required or regulated in many states across the U.S.

What Are the Proper Steps to Fire Someone in California?

Terminating an employee in California requires following legal guidelines, maintaining professionalism, and ensuring proper documentation. This guide outlines lawful termination reasons, key procedural steps, and best practices to reduce legal and financial risks.

How Long Does a Misdemeanor Stay on Your Record in California?

A misdemeanor conviction in California stays on public record indefinitely but may be eligible for expungement under specific conditions. Background checks typically show misdemeanor convictions for seven years, but expungement can remove them from most employment screenings.

How Do I Prepare a Script for Firing Someone?

Learn the professional steps for firing an employee, from preparing a script to handling emotional reactions. Understand the proper procedures, reasons, and communication techniques to ensure a smooth and respectful termination.

What Is Involved in a PAGA Lawsuit?

PAGA lawsuits allow employees to file claims for labor code violations on behalf of themselves and others in California. Employers can face significant penalties, prompting many to settle to avoid costly judgments.

What Are the Rules for 10-Minute Breaks?

California law mandates two paid 10-minute breaks and a 30-minute unpaid meal break for an eight-hour shift. Employers who fail to provide required breaks may face penalties, and employees can seek legal action for compensation.

Can I Work Six Hours Without a Lunch Break?

California law requires a 30-minute meal break for shifts over five hours, but employees can waive it if working exactly six hours. Employers must comply with strict labor laws, ensuring uninterrupted meal breaks and legal protections for workers.

What Can I Do If My Employer Didn’t Pay Me on Payday?

Employers in California must pay workers on time, or they may face penalties of up to 30 days' wages for delays. Employees can file wage claims, seek legal assistance, or report violations to the California Labor Commissioner's Office for unpaid wages.

What Qualifies as a Hostile Work Environment in California?

Employees in California facing severe or persistent harassment based on protected traits may have legal options under state and federal laws. Filing a complaint with the California Civil Rights Department or consulting an employment attorney can help protect workplace rights and seek compensation.

When Is a Doctor’s Note for Work Required in California?

California employers generally cannot demand a doctor's note for sick leave, but exceptions exist under specific laws and circumstances. Legal conflicts persist, and employers may require medical documentation for disability accommodations, FMLA leave, or other valid reasons.

What Does California Law Say About Final Paycheck Rules?

California law mandates that final paychecks be provided promptly, with termination pay due immediately and resignation pay within 72 hours. Employers must include all owed wages, expenses, and accrued benefits, with penalties for late or incomplete payments.

Can an Employer Deny a Doctor’s Note?

An employer may deny a doctor's note if the absence does not qualify for legal protections under disability or family leave laws. Employers must evaluate medical documentation, employee statements, and applicable laws before considering disciplinary action.

How Much Can You Sue an Employer for Misclassification?

An employer's misclassification tactics can deny you fair wages, benefits, and legal protections. You may be entitled to compensation, including back pay, retirement contributions, and potential punitive damages, by pursuing legal action.

How Serious Is an EEOC Complaint?

An EEOC complaint can lead to costly legal battles, reputational damage, and mandatory policy changes for businesses. Employers may face financial penalties, investigations, and compliance requirements, impacting operations and workforce morale.

Do You Have Sample Letters for Termination of a Contract?

A contract termination letter formally ends a business agreement while protecting interests. This guide outlines key steps, considerations, and sample letters.

What Is a WARN Notice in California?

The California WARN Act requires businesses with 75 or more employees to provide 60 days' notice before mass layoffs, plant closures, or relocations. Noncompliance can lead to fines, back pay, and healthcare costs, making adherence essential for legal and financial stability.

What Is FICA and How Does It Impact Payroll Taxes?

FICA is a payroll tax that funds Social Security and Medicare, requiring contributions from both employers and employees. Employers must withhold, match, and submit FICA taxes while following IRS guidelines on deposit schedules, wage bases, and additional Medicare tax requirements.

What Is At-Will Employment and How Does It Impact Employee Rights?

At-will employment allows employers and employees to end their working relationship at any time without cause, impacting job security and flexibility. While it provides businesses with staffing flexibility, employees face fewer legal protections and potential job instability.

Employers Should Exercise Caution When Terminating Employees After Disability Leave

Employers should exercise great caution when considering whether to terminate an employee who is on leave. Employers are cautioned not to automatically terminate employment solely because an employee has used or exhausted their disability leave entitlement.

What Is FUTA? 2025 Rates and How to Calculate FUTA Tax

The Federal Unemployment Tax Act (FUTA) imposes a payroll tax on businesses that have employees, collecting revenue that funds unemployment benefits.

What Is the Difference Between a 1099 Contractor and an Employee?

A 1099 contractor operates independently, covering their own taxes and expenses, while a W-2 employee receives benefits and employer tax contributions. Misclassifying workers can result in fines, making it essential to assess control, financial arrangement, and job nature before classification.

How Do Contractors Typically Get Paid? Payment Methods and Legal Guidelines

Contractors receive payments through direct deposits, checks, payroll services, or online transfers, following legal and tax regulations. Proper classification, documented agreements, and compliance with IRS reporting ensure smooth transactions and avoid penalties.

What Is the Definition of a Non-Exempt Employee?

Non-exempt employees are entitled to overtime pay and must earn at least the federal minimum wage under FLSA regulations. Unlike exempt workers, they are typically paid hourly and receive 1.5 times their wage for extra hours.

Can Union Representatives Be Present at Disciplinary Meetings?

Employees have the right to request a union representative during investigative interviews that may lead to disciplinary action. Employers must comply or face potential labor law violations under the National Labor Relations Act.

What Is an FTE (Full-Time Equivalent)?

A full-time equivalent (FTE) measures employee work hours, combining part-time and full-time schedules into a standardized metric. Businesses use FTE calculations for staffing, budgeting, and compliance with regulations like the Affordable Care Act.

What Are the Signs of Unfair Treatment at Work?

Unfair treatment at work includes discrimination, pay gaps, and biased promotions, impacting employees' well-being and career growth. Recognizing signs like harassment, favoritism, and wrongful termination helps employees take action against workplace discrimination.

What Is a Statutory Employee on a W-2 Form?

A statutory employee is a self-employed worker classified as an employee for tax withholding purposes, receiving a W-2 instead of a 1099-MISC. These workers can deduct business expenses on Schedule C but typically do not receive traditional employee benefits like health insurance or retirement plans.

What Laws Protect Employees From Workplace Bullying

493