Question

Caroline 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?

Caroline 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?

All health insurance premiums must be deducted on a pre-tax basis.checked

The premium amounts are reduced by deducting them on a pre-tax basis.checked

The employee’s income that is subject to income tax(es) is reduced.checked

The income subject to Social Security and Medicare taxes is reduced.

Answer 1

All health insurance premiums must be deducted on a pre-tax basis.

The premium amounts are reduced by deducting them on a pre-tax basis.

The employee’s income that is subject to income tax(es) is reduced.

Step-by-step explanation:

Health care premiums are deducted on a pre-tax basis, reducing the amount that both employees and employers must pay on federal income taxes, state taxes and FICA taxes.

Since your health premiums reduce your total taxes, they real amount you pay for them is reduced. Similar logic to interests paid by a company that reduce corporate taxes.