Question

aroline Watts is an employee of Lavender Creek Farm. She has come to you, the payroll accountant, for advice about her health insurance premiums, specifically if she should have them deducted pre-tax or post-tax. Required: What reason(s) would you give her for having the medical premiums deducted on a pre-tax basis?

Answer 1

If Aroline decides to deduct her medical premiums on a pre-tax basis then she will save money since she will have a lower gross income subject to federal or state income taxes, and FICA taxes (social security and medicare).

If her gross income lowers, the taxes she pays will also be lower.