Section 125 - Go For It! by Dolores Mitchell

This article is more than 14 years old.

Federal tax laws may be among the most boring topics in the world - except to tax lawyers, tax delinquents, tax dodgers, and CFOs - but this is one case where the smart consumer and the savvy employer have interests in common and both will be well served if they take advantage of one provision of the new Health Care Reform Act. The law provides that employers must allow employees to buy their health coverage with pre-tax payroll deductions. These are sometimes called cafeteria plans, or "Section 125" plans, because they are governed by Section 125 of the Federal Tax Code.

The whole point is that the federal government actually helps both you and your employer. Your employer saves FICA, State, and Federal Income Taxes and, for all but very small companies, escapes a penalty called a "free rider" surcharge. You save money on your personal income taxes, because this provision allows you to lower the amount of your taxable income by using pre-tax dollars to pay your health care premiums.

One example: on a typical $70,000 income, you could save $1,140 in taxes by funneling your health care premium through your employer's Section 125 Plan. So what should you do to make sure you get this tax benefit?

Talk to the payroll folks where you work and ask whether they offer a Section 125 plan, and if not, why not.

If you're not getting insurance through your employer, and you're getting it through the Connector, your employer has to set up a Section 125 plan for you through which you can pay your premiums with pre-tax dollars. So, go for it!Dolores L. Mitchell, Executive Director of the Group Insurance Commission of the Commonwealth of Massachusetts, the agency that provides life, health, disability and dental and vision services to 265,000 State employees, retirees and their dependents.

This program aired on May 8, 2007. The audio for this program is not available.