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Is health insurance pre- or post-tax?

The lowdown...
  • Net Income is different than gross income
  • Tax laws differ when applied to health insurance
  • There are differences of private insurance and employee insurance

Gross income and net income is often too hard to decipher between, so we do not even question whether our health insurance is taxed or not.

However, the short of it is that in most cases, health insurance is taken out before all taxes or other government-related monies upon payday.

Gross income is income earned before any and all deductions. Net income shall consist of the amount that you take home after:

  • taxes
  • insurance
  • garnishments

Use our comparison tool to find the health insurance policy that’s right for you.

Employers Versus Employees


If you have health insurance under a work plan, then there should be no insurance charges that come directly from your gross nor net income.

Furthermore, a “double dip” is against the law, meaning an employer cannot take out premiums for health insurance before and after the net income has been figured which protects you as both an employee and a consumer.

You also have the option to opt out of employer funded insurance. However, keep in mind that by utilizing your employer’s insurance, you are also ensuring you do not have to pay extra taxes since employer health coverage is taxed prior.

The IRS cannot double dip just as citizens cannot.

Tax Awareness

If you are receiving health insurance through an employer that also pays the deductible, you are not eligible to claim a deduction. However, if you pay out of pocket, some circumstances allows for tax deductions which mean a collection of receipts and doctor bills.

The reason employer-provided insurance is not tax-deductable is that your employer has already paid taxes on the amount.

Keep in mind that taxes come out for both federal and state. Some companies do allow their employees to opt into what is referred to as post-tax deductibles, however, most pre-tax on taxable income.

If you are paying for private insurance, however, tax-deductible is possible, but there is an Internal Revenue Service policy as to how much you can claim. You can also claim up to ten percent of any medical bills accrued through the year.

It is not the case with employer-provided health insurance providers. Your employer has already paid taxes on your income.

Insurance Comes in a Variety of Forms


Group health insurance comes up for a vote by the owners or the human resource department of your company or business. In rare cases, an entire company or organization votes on their health coverage.

Group health comes in a variety of plans, including cancer insurance. When enrolling through your employer, keep your health needs in mind and what each insurance company is offering.

Other line items that often take out pre-taxation is life insurance and garnishments. Using employers insurances is both handy and beneficial when it comes to your pocketbook.

By allowing your company or business to pre-pay your taxes, it keeps confusion down and is far more efficient.

Employers Responsibilities

Health Reimbursement Arrangement (HRA) is an IRS approved and employer funded to offset what is paid by the employee and not covered by their insurance coverage.

The HRA compensates the insured patient by ensuring the medical bills are taken care of entirely.

In the same spirit of the HRA, Employer Payment Plans is an agreement where an employer pays back an employee directly for health insurance policies or pays for employees’ premiums.

An Employer Payment Plan has to meet the new Affordable Care Act “Market Reforms” because it qualifies as a group health plan.

Sixty percent of Americans have secured coverage through an employer’s plan, also referred to as group health insurance. Many take advantage of the coverage because of the company’s responsibility for a significant portion of the medical expenses and not you.

It is not merely about saving money; it is also the most preferred way to pay taxes because you are taken care of by a company’s human resource department or accountants. You fill out a few forms, and your organization takes care of the rest.

Employers are also required to have you fill out a W-2 so that you can file taxes the following year. Your insurance under your employer is not a line item since it is paid for by them prior.

States differ on tax rates and policy and procedure. It is always best practice to check with your state’s requirements both of you and your company.

Difference in Tax Premiums


Your employer will remove insurance premiums from your gross pay before taxation. However, that is not the case if you have chosen private insurance.

Out-of-pocket costs are tax deductible unless you become covered by an employer that offers services that close the gap that the group plan did not pay.

Always do your research. It is your health at stake.

Find the best rate for health insurance by using our rate tool below.

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