Section 125 Health Benefits in Illinois: What Employees Should Know

• Employee-paid health premiums through a cafeteria plan are exempt from income tax withholding, Social Security tax and Medicare tax (IRS Publication 15-B, 2026).
• The employee share of FICA is 7.65%, made up of 6.2% Social Security and 1.45% Medicare, and the Social Security wage base is $184,500 in 2026 (IRS Publication 15, 2026).
• Illinois taxes income at a flat 4.95% in 2026 (Illinois Comptroller Payroll Bulletin 1-26, 2026).
• Illinois runs its own marketplace, Get Covered Illinois, and 448,568 people signed up for 2026 private coverage (healthinsurance.org, 2026).
• Cigna and Molina leave the Illinois marketplace at the end of 2026, and insurers proposed a 14.1% average increase for 2027 before subsidies (healthinsurance.org, 2026).

If you work in Illinois and see a Section 125 line on your pay stub, the short answer is that it is probably your health premium, taken out before most taxes. Illinois taxes income at a flat 4.95%, so the savings can come from federal income tax, FICA and possibly a state layer. This guide shows what you save, when you can change it, and what to ask HR if a deduction surprised you.

Reviewed by a licensed benefits professional. Last reviewed: October 19, 2026.

What are Section 125 health benefits in Illinois?

Section 125 health benefits in Illinois are health, dental or vision premiums that your employer lets you pay with pay that has not been taxed yet. The federal rule is the same in every state.

A Section 125 plan, also called a cafeteria plan, is a written employer plan that lets employees choose between cash pay and certain benefits. A cafeteria plan can offer accident and health coverage, dependent care assistance, group-term life insurance and an HSA (IRS Publication 15-B, 2026). Employee-paid accident and health benefits are exempt from income tax withholding, Social Security tax and Medicare tax (IRS Publication 15-B, 2026). Benecor's Section 125 pre-tax guide→ covers the federal rules in more detail.

How much does a Section 125 plan save an Illinois employee?

A Section 125 plan saves an Illinois employee about 19.65 cents on each pre-tax premium dollar at a 12% federal bracket, before any state effect. That is 7.65% FICA plus 12% federal income tax.

FICA is the payroll tax that funds Social Security and Medicare. The employee share is 7.65% (IRS Publication 15, 2026). Illinois taxes income at 4.95% (Illinois Comptroller, 2026). Ask payroll whether your Illinois withholding is also reduced by your pre-tax premium. If it is, the savings rise to 24.6 cents per dollar.

Your real number depends on your own bracket and on how your payroll reports state wages. Higher earners above the Social Security wage base of $184,500 stop paying the 6.2% part for the rest of the year (IRS Publication 15, 2026).

How do I read the Section 125 line on my Illinois pay stub?

The Section 125 line on your Illinois pay stub shows the total of your pre-tax benefit deductions for that pay period. Common labels include Sec 125, Cafe 125, S125 and Pre-tax medical.

Check these three things on your stub:

1. The amount per pay period. Multiply by the number of pay periods to see your yearly total.
2. The benefits inside it. Medical, dental and vision are often bundled into one line.
3. Your W-2. Box 1 should show wages after pre-tax deductions, and Box 14 may show a Section 125 or cafeteria plan label.

Benecor's W-2 Box 14 guide→ explains the labels employers use.

Can I change my Section 125 election mid-year in Illinois?

You can usually change your Section 125 election mid-year only after a qualifying life event that your plan allows. Federal rules lock elections for the plan year unless an event such as marriage, birth, divorce or a loss of other coverage occurs (26 CFR 1.125-4, 2026).

Your employer's plan document decides which events count and how long you have to ask. Many plans give 30 days. Ask HR for the plan document and the exact deadline before you assume you can change anything. Benecor's qualifying life events guide→ lists the common ones.

What if I decline my employer's plan in Illinois?

If you decline your employer's health plan in Illinois, you need other coverage, and Get Covered Illinois is the state marketplace. Illinois moved from HealthCare.gov to its own state-run site for 2026 coverage (healthinsurance.org, 2026).

The 14.1% figure is a proposal, not a final rate, so check Get Covered Illinois for what insurers actually charge. Losing job-based coverage also opens a special enrollment window. Get Covered Illinois lists losing job-based coverage as a qualifying event and says you have 60 days before or after the loss (Get Covered Illinois, 2026). Premiums paid through Section 125 come out before federal income tax and FICA (IRS Publication 15-B, 2026), which lowers what employer coverage costs you. Compare that with a marketplace quote before you decline.

How do I ask HR about my Section 125 plan?

Send HR a short written request and keep the reply. Copy this email and fill in the brackets.

Benecor's Section 125 cafeteria plan guide→ explains how the plan works, and the Illinois Section 125 plan page→ covers the employer side. If you want a Benecor benefits expert to look at your situation, contact Benecor Health→.

Sources: IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits (2026); IRS Publication 15, Employer's Tax Guide (2026); Illinois Comptroller, Payroll Bulletin 1-26, Illinois State Income Tax Exemptions (2026); healthinsurance.org, Illinois Health Insurance Marketplace guide (2026); Get Covered Illinois, Life changes and special enrollment (2026); 26 CFR 1.125-4, Permitted election changes (2026).