The Flexible Benefit Plan allows eligible employees to elect to have their medical and dental insurance premiums deducted from their pay on a before-tax basis. Since these premiums are not taxed for federal, state, and Social Security, this tax savings results in higher take-home pay.
Eligibility Requirements and Effective Date
All employees who are eligible for and enroll in health benefits are eligible to enroll in the Flexible Benefit Plan.
Employees who enroll in a medical and/or dental plan are automatically enrolled in the Flexible Benefit Plan. If you choose not to enroll in this plan, you must complete a "Health Plan Premium Pre-tax Waiver" form and return it to the SAO Benefits Office within 60 days. Coverage becomes effective the first day of the pay period following the date your form is received in the SAO Benefits Office.
If covered, once you make your health insurance election(s) for any one calendar year, you may not make any changes until the next open enrollment period unless you experience a life event that would precipitate a change in your coverage, such as the birth of a child, marriage or divorce, or a change in your spouse's employment status.
Pre-Tax Contributions May Affect Future Social Security Benefits
If you earn less than the Social Security Wage Base and your health insurance deductions are deducted before taxes, your Social Security retirement benefits may be slightly reduced. This is because Social Security benefits are based on Social Security covered earnings, as are your Social Security contributions. Before-tax contributions reduce your covered earnings, so the amount you pay into the Social Security system will be less than if your contributions are made after-tax.
This example shows the tax advantage of the before-tax treatment of health insurance premiums. For purposes of this example, we assumed a salary of $30,000 and a federal tax rate of 15% and enrollment in the CareFirst PPO under a family plan. We did not take state tax into consideration.