My last social security statement showed a reported income which was less than the previous year, although my income actually went up. Human resources told me it was due to the increased tax-exempt medical premiums I began paying that year (my husband retired and I put him on my medical plan).

Am I correct in believing the higher the medical premiums go (I'm told to expect a 12% increase in 2009), the less social security I will receive in the end as my tax-exempt income increases and my reported income decreases?

How can I determine and compare the tax savings I'm currently realizing versus the loss in future social security income?

Would it be better to waive the tax exemption?

Thanks for any information. I'm baffled.

Possibly, but the impact over your 40+ years of working is so small as to be insignificant.

The tax savings of paying your medical insurance with pre-tax dollars is a MUCH better deal than the adverse impact on your Social Security benefits.

It would not be a good idea to "waive" the tax exemption (although I'm not sure you could even if you wanted to). Premiums that are deducted from your pay for medical coverage are not inluded in your pay for determining social security taxes, medicaire taxes, federal income tax, or state income tax. For every dollar of medical premiums you are saving something like 20% in federal income tax (depends on your tax bracket) plus another 6.2% for SS, 1.45% for Medicaire, and state/local income tax. So yes, the fact that the premiums are paid with pre-tax dollars means you may well receive less in SS payments later on - BUT, the tax savings that you get today from reduced federal income tax, medicare, and state income tax make it so you come out ahead compared to if you paid all these taxes on your medical. premiums.