Pre-Tax Premium Conversion
Pre-tax premium conversion is a flex plan that lets you exclude your Medical, Dental and Vision premiums from your taxable income. By electing this, you convert your premium deductions from after-tax (which is the default) to pre-tax. That reduces your taxable income reported on your W-2, thereby reducing the amount withheld from your paychecks for Federal, State and FICA (Social Security/Medicare) taxes. Individual savings will vary based on your income, number of exemptions and your tax bracket. Most employees elect to pre-tax their premiums.
How do I enroll?
When you first enroll in Medical, Dental or Vision, you will check a box to indicate if you want those premiums deducted on a pre-tax basis. Or you may make a change during open enrollment, usually held in November, to take effect the following year. The majority of employees elect to pre-tax their premiums. It’s a great way to reduce your tax liability.
Is there a risk?
Yes, but most employees consider it slight. Once you elect to pre-tax your premium cost, you cannot change or cancel your coverage mid-year unless you are within a month of a qualifying event. Qualifying events are defined by the IRS and are generally related to family status changes such as marriage, birth of a child, divorce and death. Basically the IRS is saying that in exchange for the tax savings, you are locked into that benefit for the tax year.
Consider bypassing the pre-tax premium conversion option if you think you may need to drop coverage before the end of the year and you won’t have a qualifying event.
Benefit plan information on these web pages is in a summary format and is not intended to replace actual plan documents. UAMS reserves the right to amend or terminate all or any part of any benefit plan.