Expert: Allen - 2/20/2008

Question
When I was working I was able to use pre-tax dollars to pay for medical
insurance.  I am currently receiving a pension from Blue Cross and I continue to
have my medical premium deducted from my check.  I was told I can use pre-
tax dollars but I don't know how to do this.  I am doing my taxes and would like
to know if this can be done and how.

Answer
I believe that when you were employed you participated in what is known as a cafeteria plan. This allowed you to tell your employer that you wanted a porttion of your pay contributed to an account in the cafeteria plan. The money could then be used to pay insurance premiums and you would not be taxed on the amount that was contributed to the cafeteria plan.

I do not believe that this arrangement can continue when you are receiving a pension. You can tell what is happening by looking at the form you received which showed your pension income for 2007. The taxable amount will probably be the gross amount paid before deduction of insurance premiums. If this is the case, then you will pay tax on the gross amount.