What health benefits are exempt from federal income tax withholding, FICA and FUTA?
Generally, pre-tax salary deferrals made to cafeteria plans and flexible spending accounts (FSAs) to purchase health insurance and for medical expense reimbursements are exempt. 1. Cafeteria plans are flexible benefit plans. Employees may choose from among two or more benefits consisting of cash and qualified benefits offered by an employer. The cafeteria plan must be in writing. All participants must be employees or full-time life insurance salespersons (to the extent that they are otherwise permitted to exclude the elected benefit from income). No special permission is required from the IRS to implement a cafeteria plan. All of the before-tax salary deferrals of the employees are exempt from federal income tax, FICA, and, in the majority of states, are exempt from state withholding. Before-tax salary deferrals of employees are subject to withholding in New Jersey. In Pennsylvania before-tax salary deferrals are only exempt from withholding if they are used to purchase hospitalization
