Open Enrollment and Your Paycheck: How Benefit Choices Change Take-Home Pay

Open enrollment is when you choose your health, dental, and vision plans, and decide whether to fund an FSA or HSA. Most employers run it in the fall for a January 1 start. Every choice you make shows up on your paycheck, so it helps to know how much each one really costs you.

Why a $100 premium doesn't cost you $100

Health, dental, and vision premiums, plus FSA and HSA contributions run through payroll, are generally taken out before both income tax and Social Security and Medicare tax. You skip tax on that money, so the drop in your take-home pay is smaller than the amount deducted.

Example: a single filer earning $70,000, paid biweekly, in the 22% federal bracket, in a state with no income tax.

• Deduction per paycheck: $100
• Federal income tax saved: 22%, or $22
• Social Security and Medicare saved: 7.65%, or $7.65
• Take-home pay falls by about $70.35

Over 26 paychecks, that is $2,600 in premiums, about $771 in tax savings, and a real cost of roughly $1,829. If your state has an income tax, the savings are a bit larger.

Lower earners save less. At the 12% federal bracket, a $100 deduction costs about $80.35 in take-home pay.

Comparing two health plans

Say Plan A costs $60 per paycheck and Plan B costs $160 per paycheck.

	Plan A	Plan B
Premium per paycheck	$60	$160
Difference in premium		+$100
Difference in take-home pay		about −$70.35 per paycheck
Difference per year		about −$1,829

The cheaper premium is not automatically the better plan. Compare the premium plus the deductible, copays, and out-of-pocket maximum for the care you expect to use. A higher premium can pay for itself if you use a lot of care, and a lower one wins if you rarely do.

FSA and HSA: the two accounts that look alike

	FSA	HSA
Who can use it	Most employees whose employer offers one	Only people on a qualifying high-deductible health plan
Payroll tax treatment	Pre-tax	Pre-tax, including Social Security and Medicare, when run through payroll
If you don't spend it	Often forfeited at year end, though some plans allow a limited carryover or a short grace period	Yours to keep and carry over every year
Annual limit	Set by the IRS each year	Set by the IRS each year

Both limits change annually, so check the current figures with your employer or the IRS before you choose an amount.

Don't forget how a 401(k) compares

A traditional 401(k) contribution lowers your income tax but not your Social Security and Medicare tax. A $100 contribution in the 22% bracket costs about $78 of take-home pay, a little more than the $70.35 for a health premium or HSA contribution.

Things to check before you submit

• Your elections usually lock in for the whole plan year. You can generally change them mid-year only after a qualifying life event, such as marriage, a birth, or loss of other coverage.
• Your first January paycheck changes. New premiums and contributions start then, so a smaller check is expected. Compare it with your last December stub.
• Spouse and dependent coverage costs more. Adding family members raises the premium per paycheck.
• Look at the employer contribution. Some employers add money to an HSA or offer wellness credits, which changes the real cost of a plan.

See the effect on your own paycheck

Enter your salary and pre-tax deductions in the PayGauge take-home pay calculator to compare your paycheck before and after your new elections.

This article is for general information, not tax or insurance advice. Plan rules and limits vary by employer and change each year.