Pre-tax or after-tax?

[AccTaxMan]

Employer pays 70% of the company's health policy premium and employee pays 30%.

Employer deducts the 30% from the paycheck of the employee.

Should this 30% be deducted from the gross pay or the net pay?

I think it should be deducted from the net pay since the portion of premium paid by the employee is taxable.

If the employee paid premium is deducted from the gross pay, it would become pre-tax and non-taxable, which is incorrect.

Does anyone agree or disagree?

[David1980]

Why would the portion the employee pays be taxable?

[AccTaxMan]

Why would the portion the employee pays be taxable?

I have researched more on it.

It seems to be the only way that it is not taxable is through a Sec 125 plan. But in that case, does it mean it has to be a flexible spending account arrangement, and that the portion of premium paid by the employee (amount that reduced from his paycheck) has to be put into a special custodial account until it is used?

[AJsTax]

No

I have researched more on it.

It seems to be the only way that it is not taxable is through a Sec 125 plan. But in that case, does it mean it has to be a flexible spending account arrangement, and that the portion of premium paid by the employee (amount that reduced from his paycheck) has to be put into a special custodial account until it is used?

It is normal that health insurance paid by the employee to done through a 125 plan before taxes. The insurance company has to set it up that way and certain rules met. But very easy to do. If anyone is paying for health insurance after tax their employer is just being lazy (IMHO). The funds are not held in a separate account or anything. The employer just pays them in when the premiums are paid.

[taxea]

The final paystub for the year will indicate whether the employee portion is pre-tax or not.

[FEDUKE404]

Using payroll numbers to determine amount

The final paystub for the year will indicate whether the employee portion is pre-tax or not.

Agreed (well, I would try to find a W2).

In the interim, look at a recent pay stub and back-calculate (from FICA withholding) the amount of FICA wages that were applicable. You should then easily be able to see what the difference is between gross wages and FICA wages, and there will be your answer.

FE

[David1980]

Agreed (well, I would try to find a W2).

In the interim, look at a recent pay stub and back-calculate (from FICA withholding) the amount of FICA wages that were applicable. You should then easily be able to see what the difference is between gross wages and FICA wages, and there will be your answer.

FE

I don't think you would see a difference between gross wages and FICA wages for this.

[FEDUKE404]

Pre-tax and not pre-tax stuff

I don't think you would see a difference between gross wages and FICA wages for this.

I was unclear as to what "non-taxable" items can dodge federal tax AND FICA/Medicare tax. I know the rules perhaps differ for pre-tax medical, 401(k), and DCA amounts.

Sincere apologies if I was wrong on this "solution."

Somewhat bottom line is, from the wording of the original post, the most likely scenario is that the employee is paying "out of packet" 30% of the premiums and would therefore have a potential Schedule A deduction. It would seem a call to the employer's HR could easily settle all of this? ? ?

FE

[David1980]

I was unclear as to what "non-taxable" items can dodge federal tax AND FICA/Medicare tax. I know the rules perhaps differ for pre-tax medical, 401(k), and DCA amounts.

Yeah, me too. The only ones I ever remember is retirement accounts aren't exempt for FICA/Medicare and medical stuff is. With a cafeteria plan, the treatment is the same as if the benefit was provided outside the plan. DCA apparently is like medical expenses - exempt from payroll taxes if it is reasonable to believe amounts are excludable from gross income under section 129.

Rarely is there any question on whether something was pre-tax or not, as it usually doesn't matter. If I get a stubborn taxpayer that insists on claiming a deduction for their medical insurance or whatever I'd ask them for a copy of the final paystub like taxea suggested. You'd really need access to both W-2 and final pay stub as what I do is show them how box 1 of the W-2 is figured based off the final pay stub. So they can see what all adds up and is included or not included.

[taxea]

Agreed (well, I would try to find a W2).

In the interim, look at a recent pay stub and back-calculate (from FICA withholding) the amount of FICA wages that were applicable. You should then easily be able to see what the difference is between gross wages and FICA wages, and there will be your answer.

FE

you wont find the info on a W-2. you have to look at the deductions on the final paystub

[Burke]

I was unclear as to what "non-taxable" items can dodge federal tax AND FICA/Medicare tax. I know the rules perhaps differ for pre-tax medical, 401(k), and DCA amounts. FE

Correct. Sect 125 deductions are exempt from income tax and FICA.
401(k) deductions are exempt from income tax, but not FICA.