Health Insurance Zinger

Today TaxMama® hears from Larry in the TaxQuips Forum with a quick question. “If an employee pays for his family’s health insurance through payroll withholding, is the amount he pays free from taxes? My clients paid $6,000 in 2012 through payroll withholding and his W-2 gross income in block 1 (and blocks 3 & 5) show only the reduced amount. I know that his coverage paid by the employer is not taxable but I have a problem with this treatment.”


Dear Larry,

When a company has a POP (Premium Only Plan), then, yes, the full amount of the
health insurance premiums paid by the employee come right off the top of their wages –
without being taxed for anything. No FICA, no Medicare, no income taxes at all.

In fact, the employer’s own share of these taxes are waived as well. Their workers compensation and other costs based on wages are also reduced. It’s a terrific win-win arrangement.

This is an inexpensive plan to implement for an employer. Most payroll services offer it – talk to PayChex for details on how to set it up – or to your favorite payroll tax company. The administrative costs are more than offset by the tax savings.

And remember, you can find answers to all kinds of questions about health insurance and other tax and business issues, free. Where? Where else? At

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2 thoughts on “Health Insurance Zinger

  1. Eva Rosenberg, EA - Your TaxMama says:

    Dear Ed,

    Wow, just jump right on that employer who is paying for her health care benefits!
    Why do you think he’s skipping out on anything?

    Her W-2 doesn’t reflect this amount because the employer has a Premium Only Plan (or POP),
    where she get tax-free health insurance. Because he went to all the trouble and expense to set up this plan, she doesn’t have to pay taxes on the money first, and then pay for her premiums.

    Yeah, uh huh, he’s getting away with murder, saving her 5.65% in Social Security and Medicare for 2012 + about 25% in Federal taxes, at perhaps 5% in state taxes. Yup. He’s really ripping her off, giving her an extra $2,100 per year in take-home pay.

    Lighten up, Ed and stop accusing kind people of crimes they didn’t commit.
    And stop putting ideas like that into your friends’ heads.


  2. ed says:

    Hi… I have a friend who works 40 hrs a week for this employer.. she receives a weekly paycheck.. what my question is, her employer cuts her a check every month to deposit into employees bank and then employee pays for her health insurance thru the employer. The money given to employee is over $6000 a year to pay for insurance. Her w-2 does not reflect this amount . She was told she will loose her job next week and wants to file for Unemployment, so my next question is does she have to report the 6000 a year for health insurance as income? Because if she does then she will receive an extra $100 a week for benefits? If she doesn’t then who accounts for that $6000 a year? Sounds like employer is skipping out on something!!??… idk.. need advice for her!!!

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