The pretax deductions exempt from FICA are the ones that flow through a Section 125 cafeteria plan: your share of employer-sponsored health, dental, and vision premiums; health savings account contributions made through payroll; health care flexible spending accounts; and dependent care FSAs within the annual limit. Traditional and Roth 401(k) contributions are not exempt. Neither are 403(b) or governmental 457(b) deferrals. Those reduce your income tax wages but still owe Social Security and Medicare tax on every dollar.
A Quick Refresher on FICA
FICA is the payroll tax that funds Social Security and Medicare. Your share is 6.2% for Social Security and 1.45% for Medicare, totaling 7.65% of wages. Your employer pays a matching amount. Whether a pretax deduction reduces “wages” for FICA purposes is what determines whether you keep that 7.65% or not.
Deductions That Do Reduce FICA Wages
Everything in this group has the same thing in common: it runs through a Section 125 cafeteria plan or a similar arrangement the tax code specifically excludes from the definition of wages. That exclusion is what shrinks the earnings base for income tax, Social Security, and Medicare all at once.
Employer-Sponsored Health, Dental, and Vision Premiums
Your share of the premium, deducted through a Section 125 plan, never counts as wages for income tax or FICA. Most workers with employer coverage get this treatment automatically: the premium disappears from gross pay before any tax is calculated.
HSA Contributions Through Payroll
HSA contributions routed through your employer’s payroll system avoid federal income tax, Social Security tax, and Medicare tax at the moment of contribution. For 2026, the limit is $4,400 for self-only high-deductible coverage and $8,750 for family coverage. The FICA exemption only applies when the contribution goes through payroll. If you fund your HSA directly from your bank account, you can still deduct it on your return for income tax purposes, but the FICA you already paid on those wages is gone.
Health Care FSAs
Contributions to a health care FSA offered through a Section 125 plan are FICA-exempt. The 2026 employee contribution limit is $3,400.
Dependent Care FSAs
Dependent care FSA contributions through a cafeteria plan are also exempt from FICA. This one catches people out, including some payroll staff who incorrectly treat these dollars as FICA-taxable. The IRS has confirmed that salary reduction amounts directed to qualified cafeteria plan benefits, including dependent care assistance, are generally not subject to FICA. The 2026 limit is $7,500 per household ($3,750 if married filing separately). Anything above the annual limit gets added back into both income tax and FICA wages.
Why 401(k) Contributions Still Owe FICA
This is the most common misconception in payroll. A traditional 401(k) elective deferral reduces your income tax wages but stays fully inside the FICA wage base. The IRS is explicit: pre-tax employee salary deferrals to 401(k), 403(b), and governmental 457(b) plans are subject to FICA withholding. Roth versions of those plans are subject to both income tax and FICA, since Roth contributions are already after-tax for income tax purposes.
The reason is structural. Congress wrote a specific FICA carve-out for cafeteria plan benefits into the tax code. It never wrote an equivalent carve-out for employee retirement deferrals. Employer contributions to the plan trust, such as an employer match, are excluded from FICA wages under a different provision, but your own deferral is not.
The 2026 elective deferral limit for these plans is $24,500, and every dollar of it owes Social Security and Medicare tax.
Benefits With Unusual FICA Treatment
Group-Term Life Insurance Over $50,000
Employer-provided group-term life coverage is tax-free up to $50,000. Above that, the cost of the excess coverage is treated as imputed income and owes Social Security and Medicare tax even though you never received cash. Employers calculate the amount from an IRS premium table and add it to the FICA wage base. It appears on your W-2 in Box 12 with Code C.
Adoption Assistance
Employer-provided adoption assistance up to $17,670 in 2026 is excluded from federal income tax, but the full amount remains subject to Social Security and Medicare tax. You owe FICA on money that never shows up as taxable income on your return.
Transit Passes and Qualified Parking
Qualified transportation fringe benefits (transit passes, vanpool benefits, qualified parking) can be excluded from income tax wages up to $340 per month each in 2026. FICA treatment depends on how the benefit is structured and whether it qualifies as de minimis. If you receive transit or parking benefits and want to know whether they are reducing your FICA wages, ask your payroll department.
The Rule Behind the Split
The mechanism is IRC Section 3121(a)(5)(G). It excludes from the FICA definition of “wages” any payment made under a cafeteria plan, provided the benefit would not otherwise be treated as wages and the employee is not deemed to have constructively received cash instead. When you elect health coverage or an HSA contribution through the plan, the salary reduction never becomes wages, so there is nothing for FICA to attach to. IRS cafeteria plan guidance puts it the same way: salary reduction contributions to a Section 125 plan “are not actually or constructively received by the participant” and “generally are not subject to FICA and FUTA.”
Retirement deferrals get no comparable treatment because Congress never extended that exclusion to employee elective deferrals. That is the whole reason your 401(k) contribution shrinks Box 1 on your W-2 but leaves Boxes 3 and 5 alone.
Checking Your W-2
Your W-2 shows exactly which deductions reduced your FICA wages and which did not. Box 1 is federal taxable wages. Box 3 is Social Security wages. Box 5 is Medicare wages. A FICA-exempt deduction reduces all three. A deduction that only cuts income tax reduces Box 1 while leaving Boxes 3 and 5 higher.
A quick example. You earn $80,000, contribute $5,000 to a traditional 401(k), and pay $3,000 toward health premiums through a Section 125 plan. Box 1 drops by $8,000 to $72,000, because both deductions reduce income tax wages. Boxes 3 and 5 only drop by $3,000 (the premium), landing at $77,000. The 401(k) deferral stays in the FICA base.
This is the normal pattern for anyone contributing to a 401(k). Boxes 3 and 5 higher than Box 1 is expected. If you see the opposite, it is worth asking payroll to walk you through it.
Box 12 fills in the detail. Code D is 401(k) deferrals, Code E is 403(b), Code G is 457(b), Code W is HSA contributions (both employer and employee through payroll), and Code C is the imputed cost of group-term life coverage above $50,000. Cross-checking these against your box totals is the most reliable way to confirm each deduction got the right treatment.
One Trade-Off Worth Knowing
FICA-exempt deductions reduce the earnings that count toward your future Social Security benefit. The tax savings are real and immediate. Over a career of maximizing Section 125 benefits, the cumulative reduction in your Social Security earnings record can slightly lower your eventual monthly benefit. For most people the current savings outweigh the effect, but the trade-off is there.