Let's say one makes 50k per year base at a company that pays 100% of the cost of a 10k per year medical plan.

Now, a different company pays 0% for their similar 10k health care plan. The base pay is 60k.

Considering the tax benefits (of which I have little knowledge whatsoever), is this just a wash? Any other items that should be taken into consideration?

Location: USA (TX)


2 Answers 2


It depends on whether you're paying for health care with taxable income. If you are making $60K but spend $10K on health care, you don't want to have to pay taxes on the $10K. Under current U.S. law, I believe, employer-provided health insurance is exempt from taxes, whether paid for by the employer or by the employee. So in that case it's a wash.

But if the second employer did not offer health insurance, and you spent $10K on a personal insurance plan, that $10K would be taxable income. You'd pay taxes on $60K but only net $50K after health insurance. In that case, the first employer is offering a better deal.

  • 2
    Presumably the company offering 100% of the health insurance will continue at 100%. So if health insurance costs go up 25% its effectively a 8% raise at the company that pays 100%. Where you are not getting any offsetting raise at the company that pays 0%. But should health insurance go down 25% then its effectively a 5% raise for the guy making 60k... but I would not bet on the costs going down.
    – user4127
    Commented Jan 4, 2012 at 14:29

Federal tax deduction on health insurance can be taken if you:

  1. Itemize your deduction.
  2. Costs over 7.5% of your income.

So, in your case, if you itemize your deductions, in the latter case you'd be able to deduct 5.5K of the health insurance costs.

In the former case however you "deduct" everything as you don't pay tax on the 10K at all.

So, basic math shows that with the $50K salary with $10K insurance paid entirely by the employer you'll end up with more net money in the end than with $60K salary with the $10K insurance paid by you.

In the first case you pay taxes on $50K, in the second case you pay taxes on $54.5K (with itemized deductions) or $60K (if you take the standard deduction), on the same $50K income.

Pub 502 for details.

Note, if you're paying for an employer provided plan directly from your salary, then you're paying pre-tax money in both cases, and then you'll pay taxes on $50K in both cases, so it is a wash. My calculations refer to the case where in the first case the employer provides the insurance, and in the second case you need to get your own insurance and pay for it separately, not through your pay-check.

  • To be clear, it is employer provided insurance in both cases. It's just that employer #2 (the 60k base) doesn't provide much help (0% is not entirely true, they pay for the direct employee, just 0 towards dependants). Commented Jan 3, 2012 at 22:24
  • So yes, its a wash.
    – littleadv
    Commented Jan 3, 2012 at 22:31

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