Section 125 Health Benefits in Texas: 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).
• Texas does not have an individual income tax, so a Texas employee's savings are federal only (Tax Foundation, 2026 Texas tax rates).
• A Texas employer may not withhold any part of your wages unless a court orders it, a law allows it, or you gave written authorization, and a wage claim must be filed within 180 days (Texas Labor Code Sections 61.018 and 61.051).
• In 2024, 21.6% of Texas adults had no health insurance, compared with 11.3% nationally (U.S. Census Bureau American Community Survey, 2024).

If you work in Texas 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. Texas has no state income tax, so your savings come from federal income tax and FICA only. This guide shows what you save, what Texas law says about paycheck deductions, and what to ask HR if a deduction surprised you.

Reviewed by a licensed benefits professional. Last reviewed: October 14, 2026.

What are Section 125 health benefits in Texas?

Section 125 health benefits in Texas 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 Texas adds its own rules on wage deductions.

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 Texas paycheck?

A Section 125 plan saves the typical Texas employee about 19.65 cents on every pre-tax dollar, which is 12% federal income tax plus 7.65% FICA. There is no Texas income tax layer 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.

Your real savings depend on your federal bracket. 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 Texas?

Section 125 is not taxable in Texas, because Texas does not have an individual income tax (Tax Foundation, 2026). There is no Texas tax on your wages for Section 125 to reduce, so your federal income tax and FICA are where it helps.

You can see the federal effect on your own W-2. Box 1, wages for federal income tax, should be lower than your gross pay by the amount of your pre-tax deductions. If it is not, ask HR or payroll why. Benecor's guide to W-2 Box 14→ explains the Section 125 line that some employers print there.

Texas employees often ask about the employer-side Section 125 rules in Texas→. Those cover plan setup and employer savings, while this page covers what a single employee sees on a pay stub.

Can my Texas employer take a deduction I did not authorize?

A Texas employer usually cannot take a paycheck deduction without your written authorization. Under the Texas Payday Law, an employer may not withhold or divert any part of an employee's wages unless a court orders it, state or federal law allows it, or the employer has written authorization from the employee for a lawful purpose (Texas Labor Code Section 61.018).

A signed Section 125 election form is the kind of written authorization employers normally keep for a premium deduction. If you cannot remember signing one, ask HR for a copy. A wage claim with the Texas Workforce Commission must be filed no later than the 180th day after the wages became due (Texas Labor Code Section 61.051).

This is general information, not legal advice. A Texas employment lawyer or the Texas Workforce Commission can answer questions about a specific wage claim.

Can I change my Section 125 election in Texas?

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 a HealthCare.gov plan instead. Texas uses the federal HealthCare.gov marketplace, and nearly 4.2 million Texans selected plans in the 2026 open enrollment period (healthinsurance.org, 2026). Open enrollment for 2027 coverage begins November 1, 2026 and ends January 15, 2027 (CMS statement reported by Medical Daily, 2026).

What happens if I decline my Texas employer's coverage?

Declining employer coverage in Texas can leave you uninsured, because Texas has a high uninsured rate and has not expanded Medicaid. Check the alternatives before you opt out.

Premiums paid through Section 125 come out before federal income tax and FICA (IRS Publication 15-B, 2026), which lowers what coverage costs you. If the plan itself is the problem, a case review can help you understand your options before you decide.

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. Employers in Texas who want the employer side can read Summit Health Benefits' Section 125 page for Texas↗. 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); Tax Foundation, 2026 Texas Tax Rates and Rankings (2026); Texas Labor Code Sections 61.018 and 61.051, Texas Payday Act (current text, statutes.capitol.texas.gov); U.S. Census Bureau American Community Survey, health insurance coverage, as reported by Texans Care for Children (2024); healthinsurance.org, Texas Health Insurance Marketplace and Texas Medicaid guides (2026); KFF, Medicaid coverage gap estimate, as reported by healthinsurance.org (February 2025); Medical Daily, ACA open enrollment 2027 dates, citing a CMS statement (2026); 26 CFR 1.125-4, Permitted election changes (2026).