Section 125 Health Benefits in New York: 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).
• New York State tax for a resident starts from federal adjusted gross income, so a $400 monthly premium ($4,800 a year) excluded federally is generally excluded from the New York starting figure too (New York Tax Law Section 612(a), 2026).
• New York Paid Family Leave takes 0.432% of gross wages in 2026, up to $411.91 a year, and it is a separate deduction from Section 125 (New York Paid Family Leave, 2026).
• NYC employers with 20 or more full-time non-union employees must offer pre-tax commuter benefits, which is a different benefit from Section 125 health premiums (NYC Department of Consumer and Worker Protection, 2026).

If you work in New York 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. This guide explains what you save, how New York State and New York City treat it, which other New York deductions are not part of it, and what to ask HR if a deduction surprised you.

Reviewed by a licensed benefits professional. Last reviewed: October 13, 2026.

What are Section 125 health benefits in New York?

Section 125 health benefits in New York 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, and New York adds its own rules on top.

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 on a New York paycheck?

A Section 125 plan saves the typical employee about 20 cents on every pre-tax dollar once federal income tax at 12% and FICA at 7.65% are counted. New York State and New York City savings are on top of that.

Here is a worked example. The numbers are hypothetical. An employee earns $5,000 a month and pays $400 a month toward health premiums. The 7.65% FICA rate comes from 6.2% Social Security plus 1.45% Medicare (IRS Publication 15, 2026). The example assumes a 12% federal income tax bracket for illustration.

These figures exclude New York State and New York City income tax. Your real savings depend on your federal bracket, your New York bracket and whether you live in the city. If you earn above the Social Security wage base of $184,500 in 2026, the 6.2% part stops applying to your pay above that line (IRS Publication 15, 2026).

Is Section 125 taxable in New York State or New York City?

In most cases, no. The New York adjusted gross income of a resident starts with federal adjusted gross income, "with the modifications specified in" the Tax Law (New York Tax Law Section 612(a), 2026). Because Section 125 premiums are already left out of your federal wages, they are left out of the starting figure for New York too.

New York State also has a long-standing Department of Taxation and Finance memo on cafeteria plans. It says cafeteria plan benefits follow the federal timing for New York State and New York City income tax (TSB-M-84(7)-I, 1984). That memo is old, and the Tax Law is the better rule to rely on. For anything unusual, such as HSA money, check with the New York State Department of Taxation and Finance or a tax professional.

You can see this on your own W-2. Compare Box 1, federal wages, with Box 16, state wages. They are often close for an employee with only premium deductions. If Box 16 is higher than Box 1, ask HR or payroll why. Benecor's guide to W-2 Box 14→ explains the Section 125 line that some employers print there.

Which New York paycheck deductions are not Section 125?

Several New York paycheck lines look similar but are not part of Section 125. Mixing them up is the most common reason employees think a deduction is wrong.

If a line on your stub says CAF125, S125 or H125, read Benecor's explainers on the CAF125 label→ and the sec 125 line on a W-2→.

Can I change my Section 125 election in New York?

Usually only after a qualifying life event, and only if your plan allows it. Under 26 CFR 1.125-4, a plan may permit a change when your status changes, such as marriage, divorce, a birth or adoption, or a change in employment (26 CFR 1.125-4, 2026).

The plan is not required to allow every change, and the change must fit the event. Benecor's list of Section 125 qualifying life events→ shows the common ones and the timing rules. If you decline your employer's coverage during the year, you may need New York State of Health instead. Its open enrollment for 2027 coverage opens November 1 (NY State of Health, 2026) and runs to January 31, 2027 (healthinsurance.org, updated October 2026).

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 New York Section 125 page for employers→ covers the employer side. Employers in New York who want to compare costs can read Summit Health Benefits' New York small business health insurance guide↗. 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); IRS Tax Topic 424, 401(k) Plans (2026); New York Tax Law Section 612(a), Resident Individual New York Adjusted Gross Income (2026); New York State Department of Taxation and Finance, TSB-M-84(7)-I, Cafeteria Plans and Section 401(k) Plans (1984); New York Paid Family Leave, 2026 Contribution Rate (2026); NYC Department of Consumer and Worker Protection, Commuter Benefits Law Information for Employers (2026); NY State of Health, Open Enrollment (2026); healthinsurance.org, ACA Open Enrollment Guide (updated October 5, 2026); 26 CFR 1.125-4, Permitted election changes (2026).