Small business · Payroll

Letting employees pay health premiums pre-tax

If employees pay part of their premium, a cafeteria plan can let them do it before tax. Here’s what the IRS allows and who’s left out.

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Pre-tax employee share
Owners excluded
Simple plan: 100 or fewer

Set up pre-tax premiums

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Short answerAccident and health benefits are qualified benefits that can be offered through a cafeteria plan.^[1] You can generally exclude the value of accident or health benefits you provide to an employee from the employee’s wages.^[1] Talk to your payroll provider or CPA about plan documents before you start.

Who can’t participate

A more-than-2% S corporation shareholder isn’t treated as an employee for this purpose; treat them like a partner for fringe benefits.^[1]
Plans that favor highly compensated or key employees lose some tax benefits for those employees.^[1]

Simple cafeteria plans

An employer that employed an average of 100 or fewer employees in either of the 2 preceding years can set up a simple cafeteria plan, which comes with its own eligibility, participation and contribution requirements.^[1]

Related limits for 2026

Health FSA salary reductions are capped at $3,400 for plan years beginning in 2026.^[1]
QSEHRA payments are employer-funded only; no salary reductions allowed.^[1] See QSEHRA.

Sources

IRS, Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits. https://www.irs.gov/publications/p15b

Checked October 16, 2026. 2027 Marketplace plans and final 2027 rates aren’t published yet; we’ll update this page when they are.

Frequently asked questions

Can employees pay health premiums pre-tax?

Accident and health benefits are qualified benefits under a cafeteria plan, so employees can generally pay their share by salary reduction under a properly documented plan.

Can an S corporation owner pay premiums through a cafeteria plan?

A more-than-2% S corporation shareholder isn't treated as an employee for this purpose.

What is the 2026 health FSA limit?

$3,400 in salary reductions for plan years beginning in 2026.

Will you sell my information?

No. Your information goes to Nexus Benefit Solutions only and is never sold.

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