H125 Deduction: What the Health 125 Code on Your Pay Stub and W-2 Means

• Health premiums paid through a Section 125 cafeteria plan are excluded from federal income tax, Social Security and Medicare wages, per IRS Publication 15-B (2026).
• Employee FICA is 7.65% in 2026, so every $1,000 of health premium taken as an H125 deduction saves at least $76.50 in payroll tax, per IRS Publication 15 (2026).
• The average worker paid $1,440 a year toward single coverage and $6,850 toward family coverage in 2025, per the KFF Employer Health Benefits Survey (2025).
• The 2026 Form W-2 split Box 14 into Box 14a for other information and Box 14b for tipped occupation codes, per the IRS General Instructions for Forms W-2 and W-3 (2026).
• Section 125 elections can change mid-year only after events listed in 26 CFR 1.125-4, such as marriage, a birth or losing other coverage (2026).

You are looking at your pay stub or W-2 and see "H125" or "Health 125" next to a dollar amount. An H125 deduction is almost always your health insurance premium, taken out before tax through a Section 125 cafeteria plan. That is good news for your tax bill. The rest of this guide shows how to confirm it, what it saves you, and what to do if the deduction is something you never picked.

Reviewed by a licensed benefits professional. Last reviewed: September 26, 2026.

What is an H125 deduction?

An H125 deduction is a pre-tax payroll deduction for a health benefit, usually medical insurance premiums, made through a Section 125 cafeteria plan. The "H" typically stands for health and "125" points to Section 125 of the Internal Revenue Code.

A Section 125 cafeteria plan is a written employer plan that lets you pay for certain benefits with pay that has not been taxed yet. Benecor Health's Section 125 cafeteria plan guide→ covers how employers set one up.

The IRS does not publish a list of pay stub or Box 14a labels. Each payroll system shortens its own deduction names to fit on the stub. That is why one employer shows "H125," another shows "HLTH 125," and a third lumps everything into "CAF 125."

These are patterns, not rules. Your employer's pay stub legend or benefits confirmation is the final word. Benecor's guide to the cafeteria plan deduction on a paycheck→ covers the combined CAF 125 and SEC 125 labels in more detail.

What does a health 125 deduction on a W-2 mean?

A health 125 deduction on a W-2 means the total pre-tax health premiums you paid through a Section 125 plan for the year. Employers often list that total in Box 14a as information only, and it has already been removed from your Box 1 wages.

Box 14a is the "Other" box on the 2026 Form W-2. The IRS General Instructions for Forms W-2 and W-3 (2026) let employers use it for items such as health insurance premiums deducted. Nothing in Box 14a adds tax. You do not add it back to income.

Here is how an H125 total shows up across the form:

Benecor's guide to W-2 Box 14 and Section 125→ walks through the Box 14 labels, and the W-2 code DD guide→ explains the larger health coverage number in Box 12.

Is an H125 deduction taxable?

An H125 deduction is not taxable. Health premiums paid through a Section 125 cafeteria plan are excluded from federal income tax withholding, Social Security and Medicare tax, and federal unemployment tax, per IRS Publication 15-B (2026).

That is the whole point of the code. The deduction comes out of your gross pay before tax is figured. Your paycheck shrinks by the premium, but your taxes shrink too, so your take-home pay drops by less than the premium.

Worked example: an H125 deduction every paycheck

Take a hypothetical employee earning $48,000 a year, paid every two weeks, who pays $250 a month toward single medical coverage through the Section 125 plan. The pay stub shows H125 of $115.38 each paycheck.

1. Yearly H125 total: $250 x 12 = $3,000, or $115.38 on each of 26 paychecks.
2. Box 1 wages: $48,000 minus $3,000 = $45,000.
3. FICA saved: 7.65% of $3,000 = $229.50.
4. Federal income tax saved at the 12% bracket: 12% of $3,000 = $360.00.
5. Total tax saved: $229.50 + $360.00 = $589.50 a year.

In real terms, the H125 deduction costs this employee about $2,410.50 a year out of pocket for $3,000 of coverage. State income tax savings would add to that in most states.

Can I stop an H125 deduction mid-year?

You generally cannot stop an H125 deduction mid-year just because you changed your mind. Section 125 elections are locked for the plan year, and 26 CFR 1.125-4 allows changes only after specific events, such as marriage, divorce, a birth, or gaining or losing other coverage.

The rule exists because the tax break depends on the election being made before the plan year starts. A change must also match the event. Getting married, for example, can let you add a spouse or drop your own coverage to join your spouse's plan.

Some H125 deductions start because the employer set up automatic enrollment. The IRS allows automatic enrollment in a cafeteria plan for health premiums when employees get notice and a chance to decline, per IRS Revenue Ruling 2002-27. If you never received that notice, ask HR for a copy of the enrollment notice and the plan document.

A newer source of surprise deductions is a Section 125 "wellness" or indemnity plan added by the employer. Benecor's guide to the Section 125 cafeteria plan wellness deduction→ explains how those plans work and why the IRS has questioned some designs.

How do I check that my H125 deduction is right?

You check an H125 deduction by matching the per-paycheck amount to the premium on your benefits confirmation, then confirming your Box 1 wages are lower by the yearly total. If the numbers match, the deduction is working as designed.

1. Find your benefits confirmation from open enrollment. It lists your monthly or per-paycheck cost for each plan.
2. Compare it to the H125 line on a recent pay stub. Divide the monthly premium by your paychecks per month.
3. Check year-to-date. The H125 year-to-date total on your last stub should match the W-2 Box 14a amount, if your employer lists one.
4. Check Box 1. Salary minus all pre-tax deductions should equal Box 1 wages.
5. Look for a second 125 line. A separate 125 deduction with no matching plan on your confirmation is the one to ask HR about.

What should I ask HR about an H125 deduction?

You should ask HR which benefit the H125 deduction pays for, when you elected it, and whether it runs through the Section 125 plan. A written answer gives you a record if a number looks wrong.

For the employer side of these codes, see this plain-English guide to Section 125 on a W-2↗. If you still cannot match a deduction, request a case review→ with a Benecor benefits expert.

Sources: IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits (2026); IRS Publication 15, Employer's Tax Guide (2026); IRS General Instructions for Forms W-2 and W-3 (2026); 26 CFR 1.125-4, Permitted election changes (2026); IRS Revenue Ruling 2002-27 (2002); Internal Revenue Code Section 125 (2026); KFF, 2025 Employer Health Benefits Survey (2025).