Benefits Plans - Medical Insurance: Premium Conversion
Paying Your Share with Pre-tax Dollars
Premium conversion is an Internal Revenue Service program that allows you to pay medical insurance premiums premiums with pre-tax dollars or after-tax dollars. With pre-tax deductions, the premium is subtracted from your pay before federal, state, and FICA taxes are calculated. That reduces your taxable income and saves you money in taxes every payday.
- If you do not designate pre-tax or after-tax on your Personal Enrollment Worksheet and you are newly enrolling in a medical insurance plan, your costs will be automatically deducted on a pre-tax basis.
- Dental and Vision costs are automatically deducted on a pre-tax basis.
- Optional Life Insurance, Dependent Life Insurance, Expanded Long-Term Disability, and Legal Plan costs are automatically deducted after-tax.
Impact of Using Premium Conversion
Opting to pay for medical insurance on a pre-tax basis (premium conversion) does not reduce your pay for purposes of determining your Life Insurance, Travel Accident Insurance and Secure Travel Plan, Long-Term Disability, or Retirement benefits provided by the University.
Social Security
If you earn less than the Social Security Wage Base ($106,800 for 2009), premium conversion will reduce your FICA taxes along with your income taxes. This means your future Social Security benefit may be slightly reduced. For most people, however, taxes saved now through premium conversion are greater than the reduction in future benefits.
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.