Section 125 Health Benefits in Michigan: What Employees Should Know
Section 125 health benefits in Michigan let employees pay premiums before federal income tax, Social Security tax and Medicare tax. Michigan's flat 4.25% income tax may shrink too, depending on how payroll handles withholding. This guide shows a worked monthly example, how to read the line on a pay stub, when an election can change, which Michigan marketplace facts matter if you decline your employer's plan, and an email to send HR.
- 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).
- Michigan's individual income tax rate stays at 4.25% for tax year 2026 (Michigan Department of Treasury, April 2026).
- Michigan withholding follows the federal wage definition for cafeteria plan benefits (Michigan Treasury Revenue Administrative Bulletin 1988-27).
- Michigan shops on HealthCare.gov, and 2027 open enrollment is expected to run November 1, 2026 to January 15, 2027 (healthinsurance.org, 2026).
If you work in Michigan 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. Michigan adds a flat state tax on top of the federal picture. 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 22, 2026.
What are Section 125 health benefits in Michigan?
Section 125 health benefits in Michigan 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.
Does Michigan tax Section 125 health contributions?
Michigan ties its withholding to the federal wage definition, so premiums that qualify for the federal exclusion are generally not part of the wages Michigan withholds on. Michigan's Treasury bulletin says benefits that do not qualify for the Section 125 exclusion are fully taxable, and that Michigan withholds on the same amount of taxable benefits that is subject to federal withholding (Michigan Treasury, RAB 88-27, 1988).
Michigan's flat individual income tax rate is 4.25% for tax year 2026. Treasury kept the rate unchanged because state revenue fell 1.56% in fiscal year 2025 while inflation rose 2.70%, so the automatic rate cut did not apply (Bloomberg Tax, April 2026). Your employer's payroll system decides how your pre-tax premium shows up in your Michigan withholding each pay period. Ask payroll before you count on that part of the savings.
Some Michigan cities, such as Detroit, also charge a city income tax. City rules and rates change, so check your city's treasury office and ask payroll how your pre-tax premium is handled.
How much does a Section 125 plan save a Michigan employee?
A Section 125 plan saves a Michigan employee at least 19.65 cents on each pre-tax premium dollar at a 12% federal bracket. That is 7.65% FICA plus 12% federal income tax. State savings come on top if your payroll applies them.
FICA is the payroll tax that funds Social Security and Medicare. The employee share is 7.65% (IRS Publication 15, 2026). The federal bracket in the table is an example. Your own bracket may differ.
| Tax | Rate | Monthly savings |
|---|---|---|
| FICA (Social Security and Medicare) | 7.65% | $30.60 |
| Federal income tax | 12% | $48.00 |
| Subtotal, federal only | 19.65% | $78.60 |
| Michigan income tax, if payroll excludes the premium | 4.25% | $17.00 |
| Total with Michigan income tax | 23.90% | $95.60 |
Your real number depends on your bracket and how payroll applies state withholding. 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 Michigan pay stub?
The Section 125 line on your Michigan 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:
- The amount per pay period. Multiply by the number of pay periods to see your yearly total.
- The benefits inside it. Medical, dental and vision are often bundled into one line.
- Your W-2. Box 1 should show wages after pre-tax deductions, and Box 14 may show a Section 125 or cafeteria plan label. Compare Box 1 with your Social Security and Medicare wage boxes.
Benecor's W-2 Box 14 guide explains the labels employers use.
Can I change my Section 125 election mid-year in Michigan?
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 Michigan?
If you decline your employer's health plan in Michigan, you need other coverage, and the marketplace is HealthCare.gov. Michigan had 497,064 private plan selections in 2026 open enrollment, about 6% below the 2025 record of 531,083 (healthinsurance.org, 2026).
| Fact | Figure | Source |
|---|---|---|
| 2026 open enrollment sign-ups | 497,064 people | healthinsurance.org, 2026 |
| 2025 open enrollment sign-ups | 531,083 people | healthinsurance.org, 2026 |
| 2027 proposed average increase | About 14% before subsidies | healthinsurance.org, July 2026 |
| Highest proposed 2027 increases | UnitedHealthcare Community Plan 25.5%, Meridian 24.4% | healthinsurance.org, July 2026 |
| Lowest proposed 2027 increases | Priority Health 11.1%, Oscar 11.9% | healthinsurance.org, July 2026 |
| 2027 open enrollment | Expected November 1, 2026 to January 15, 2027 | healthinsurance.org, 2026 |
The 14% figure is a proposed average. Your own plan price can differ, and final rates may change. A federal rule that would have shortened open enrollment was vacated in June 2026 (healthinsurance.org, 2026), so confirm the dates and the cutoff for a January 1 start on HealthCare.gov. 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 Michigan 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); Michigan Department of Treasury, Revenue Administrative Bulletin 1988-27, Cafeteria Plans (1988); Bloomberg Tax, Michigan Treasury Announces 2026 Individual Income Tax Rate (April 20, 2026); healthinsurance.org, Michigan health insurance marketplace (updated July 17, 2026); 26 CFR 1.125-4, Permitted election changes (2026).
Frequently asked questions
- What are Section 125 health benefits in Michigan?
- They are health, dental or vision premiums that you pay with pay that has not yet been taxed, through your employer's written cafeteria plan. Employee-paid accident and health benefits are exempt from federal income tax withholding, Social Security tax and Medicare tax (IRS Publication 15-B, 2026).
- Is Section 125 taxable in Michigan?
- Michigan's Treasury bulletin ties withholding to the federal wage definition and says only benefits that fail the Section 125 exclusion are fully taxable (Michigan Treasury, RAB 88-27, 1988). Qualifying health premiums are not part of federal taxable wages. Ask payroll how your Michigan withholding is handled, since payroll settings can differ.
- How much does a Section 125 plan save a Michigan employee?
- On a $400 monthly premium, the federal savings are about $78.60 a month at a 12% bracket. That is $30.60 of FICA at 7.65% and $48 of federal income tax. Michigan income tax at 4.25% could add $17 if payroll excludes the premium (IRS Publication 15, 2026; Bloomberg Tax, 2026).
- Can I stop a Section 125 deduction mid-year in Michigan?
- Usually only after a qualifying life event that your plan allows (26 CFR 1.125-4, 2026). Elections are generally locked for the plan year. If a deduction appeared that you never chose, ask HR for the plan document and consider a case review.
- What if I decline my Michigan employer's health plan?
- You would need other coverage. Michigan residents shop on HealthCare.gov, and 2027 open enrollment is expected to run November 1, 2026 to January 15, 2027 (healthinsurance.org, 2026). Check HealthCare.gov for the cutoff that gives you a January 1 start.
- Does marketplace open enrollment affect my Section 125 plan?
- Your employer's Section 125 enrollment follows your plan year, which can differ from the marketplace dates. Marketplace open enrollment for 2027 starts November 1, 2026 (healthinsurance.org, 2026). Losing job coverage opens a separate special enrollment window.
Continue reading
- Section 125 Plan in Michigan: 2026 Employer Guide — Section 125 Plan
Michigan's 4.25% flat income tax + Detroit's 2.4% city income tax + FICA — §125 eliminates all three layers for Ford, GM, and Stellantis workforce employers. Real Dearborn paycheck math and EV plant enrollment strategy inside.
- Is Section 125 Pre Tax? What It Skips and What It Does Not — Employee Benefits
Section 125 deductions come out of your pay before income tax, Social Security and Medicare. See what is pre tax, what is not, and what you save.
- Section 125 qualifying life events — Section 125 Plan
Section 125 qualifying life events let employees change benefit elections mid-year. See the IRS-approved events, the consistency rule and how to set the policy.
About the author
Muhammad Mudassir — Co-founder & Health Tech Sales Lead
Muhammad Mudassir, who goes by Moe, is a co-founder and health technology operator focused on Section 125 cafeteria plans and zero-cost employer benefits. He has spent years getting employers enrolled in compliant cafeteria plans, onboarding nationwide workforces into the WoW Health and UnifyWell ecosystems, and translating the mechanics of FICA recapture into language that HR, finance, and ownership can act on.