Benefits Deduction Impact Calculator

How this calculator works

Step 1 — Per-paycheck gross

Annual salary is divided by the number of pay periods using exact arithmetic — no intermediate rounding:

• Weekly: annual ÷ 52
• Biweekly: annual ÷ 26
• Semi-monthly: annual ÷ 24
• Monthly: annual ÷ 12

Step 2 — What reduces FICA-taxable wages

Under IRC § 3121(a)(5), contributions made through a Section 125 cafeteria plan are excluded from FICA-taxable wages. This means the following per-paycheck deductions lower the wage base on which Social Security and Medicare are calculated:

• Health insurance (employer-sponsored, employee share)
• Dental insurance
• Vision insurance
• Flexible Spending Account (FSA) contributions
• Health Savings Account (HSA) contributions via payroll

Two common deduction types do not reduce FICA-taxable wages:

• 401(k) pre-tax contributions — excluded from federal income tax under IRC § 402(g), but FICA-taxable wages are not reduced per IRC § 3121(a). You pay Social Security and Medicare on 401(k) contributions.
• Post-tax deductions (e.g., Roth 401(k), after-tax insurance, garnishments) — no exclusion from FICA wages or federal income.

Step 3 — FICA on the adjusted wages

FICA is computed on each wage figure (before and after Section 125):

• Social Security: 6.2% on wages up to the 2026 annual wage base of $184,500 per employee (SSA.gov). The per-paycheck SS calculation uses an equal share of the annual cap.
• Medicare: 1.45% on all FICA-taxable wages with no ceiling (IRS Publication 15).
• Additional Medicare Tax: 0.9% on wages above $200,000/year (IRS Topic 751). This only applies to high earners and is uncommon.

Step 4 — FICA savings and effective cost

Because Section 125 deductions lower FICA-taxable wages, you pay less in Social Security and Medicare when you enroll in these benefits. The calculator surfaces this as:

• FICA savings = FICA without benefits − FICA with benefits. For most employees this is roughly 7.65% of Section 125 deductions (the combined employee FICA rate).
• Effective cost = total deductions − FICA savings. This is how much your take-home actually decreases — less than the “sticker price” listed on your benefits election form.

Example: $150/paycheck health insurance under Section 125 reduces your FICA-taxable wages by $150. At the combined 7.65% employee FICA rate that saves approximately $11.48 in FICA — so the premium reduces take-home by roughly $138.53, not $150.00.

What this calculator doesn’t cover

Federal and state income tax. Section 125 deductions also reduce federal (and usually state) taxable income, which produces additional savings beyond FICA. The actual income-tax benefit depends on your marginal bracket and state, and is explicitly out of scope here. Your full take-home will be higher than shown once income-tax withholding is factored in.

Year-to-date context. Social Security is computed per paycheck using an equal share of the annual wage base. For high earners who hit the SS cap mid-year, actual per-paycheck SS will drop to zero after the cap is reached. Use the Paycheck Take-Home Calculator with YTD wages for a mid-year view.

Employer HSA contributions. Employer-paid HSA contributions are also excluded from FICA wages but are not an employee paycheck deduction, so they are not modeled here.

Last reviewed: June 2026