Stop Using Tax Terminology to Explain Employee Benefits

scissors next to the word tax

Every employee benefit pro experiences at least one nightmare open enrollment at some point in their career. And almost always the nightmare is due to miscommunication and lack of comprehension. And what is more difficult to communicate and comprehend than employee benefits tax terminology?

Pre-tax, after-tax, tax-advantaged, tax-deferred, tax-exempt, tax-favored, tax-free, tax-qualified, tax-savings... These are all tax terms benefit pros routinely use to describe the important features of various benefit plans. Some of these terms have the same basic meaning, making them especially difficult to comprehend. And all of these terms use the one word that most workers know little about

Avoiding Tax Terms

Probably the best way to communicate the tax features of workplace benefit plans without using tax terminology is to:
  • Call them money-saving or cost-reducing features,
  • Illustrate these features using simplified examples
Benefit pros can create numerical examples of how participating in certain benefit plans effect take-home pay. Using a spreadsheet application like Excel or a salary/deduction calculator like makes creating these examples quick and easy. But sometimes even numerical examples dont get the message across. Employees may still misunderstand how the tax structure of their employer-sponsored employee benefits saves them money until it is too late.

Case in point: Employers with positive election pre-tax health insurance programs.

This means that every year employees have to complete a form (positively elect) stating that they want to pay their health insurance premiums with pre-tax/tax-free dollars. Employees who do not complete the form every annual open enrollment period pay their health insurance premiums with after-tax dollars. Imagine the thousands of employees who ignore open enrollment announcements or do not understand what a positive election means. They have to wait until they receive their first paycheck of the new plan year to realize their paychecks are smaller. And by then it is too late to make a change because the tax code does not allow it.

Oh, a sample paycheck advice is another great way to illustrate the impact of benefit plan tax features on take-home pay. Benefit pros can provide customized check advice samples to employees based on the current benefit plan elections. A second advice can show what they paycheck looks like without this favorable treatment of benefits.


Maybe it is not entirely possible to communicate employee benefits without using tax terminology. For compliance sake this information has to appear in some benefit materials like summary plan descriptions. However, when possible, use terms like money saving or more take-home pay instead of pre-tax or tax-favored. Also, provide a simple numerical example to highlight the savings employees enjoy when they enroll in certain benefit plans.

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