The ability to have your medical insurance paid for with pretax dollars is regarded as one of the most sacrosanct quirks written into tax law. Typically the way the exemption works is that tax law allows you to agree with your employer to voluntarily reduce your income and have that reduction cover the cost of your premiums. If your employer doesn’t deduct your pretax medical from your gross income, you might actually be paying taxes on your tax-free benefit.
Talk to Human Resources
Your human resources department, or if you’re in a smaller firm, the person who handles payroll, is responsible for administering your benefits and ensuring that all appropriate withholding and deductions are taken from your paycheck. Check with human resources to see that your insurance premiums are in fact paid, and if they have been paid, why that's not reflected on your pay stub.
Check That You Made The Right Election
Pretax income isn’t the only way employees pay for medical insurance. Some employers actually provide the option for employees to use after-tax funds to pay for health insurance. It’s not typical, but there could be benefits down the road from having a higher reported income despite the additional taxes. Human resources will have your benefits paperwork, and it should show whether you elected to use a salary reduction to cover health insurance premiums.
Paid, Yet Not Deducted
Your gross income is reported higher than you anticipated. Are your health insurance premiums paid up? If the premiums are current, though, and they’re not coming from your after-tax paycheck, then you're being paid more than you had thought. While it's hard to see how being overpaid could be bad, if you have a written agreement specifying how much you should be paid your employer could charge past overpayments back to you, resulting in an even slimmer paycheck down the road.
Call your health insurance provider and check that your policy is still active. Your employer is responsible for sending premium payments to the insurance company, but that's not a guarantee that it will be done. People make mistakes and might fail to withhold and remit premiums. Or, firms that are strapped for cash might misappropriate employee benefit contributions to help settle other bills. While you would have a case against your employer if your policy lapsed because of its action or inaction, you are personally responsible for any medical bills you incur.
Sean Butner has been writing news articles, blog entries and feature pieces since 2005. His articles have appeared on the cover of "The Richland Sandstorm" and "The Palimpsest Files." He is completing graduate coursework in accounting through Texas A&M University-Commerce. He currently advises families on their insurance and financial planning needs.