What is a Section 125 plan?
Section 125 is the part of the Internal Revenue Code that allows employees to pay for certain group benefits with pre-tax dollars. The plan does not provide any benefits, but rather permits employees to pay for the coverage on a pre-tax basis through salary reduction. These plans are commonly called premium only plans (POP) or […]
Who can establish a Section 125 plan?
A Section 125 Plan may be established for any single employer or certain “related” employers. The employer installing the plan may be of any ownership form (sole-proprietor, corporation, partnership, etc.).
Which insurance premiums may be paid pre-tax?
Group health insurance Dental and vision insurance Disability – If contributions are made pre-tax, the benefit paid is taxable. Group term life (max $50,000) Voluntary benefits – (i.e. cancer policies) If contributions are made pre-tax, the benefit paid is taxable. In addition, many employers only permit post-tax payment for these premiums post-tax due to the […]
Does a Section 125 plan need specific language to allow contributions pre-tax to a Health Savings Account (HSA)?
Yes. A contribution to a health savings account (HSA) is not an insurance premium. It is a deposit to a savings account. Section 125 plans traditionally only contain language for group insurance premiums. In order to permit employees to contribute pre-tax to an HSA, the plan must be updated to include the required language. FlexBank’s […]
Must the employer report information on W-2s?
Starting in tax year 2012, the Affordable Care Act requires employers filing 250+ Forms W-2 for the preceding calendar year to report the aggregate reportable cost of applicable employer-sponsored health insurance coverage provided on each employee’s W-2 in box 12 using code DD. Aggregate reportable cost for this reporting requirement does not include amounts contributed […]
When can an employer begin this plan?
Employers may start the plan at any time during the year. The plan must be in writing and adopted prior to the effective date.
What is the plan year?
The plan year is the 12-month period of time governing the plan’s operation.
What are the eligibility requirements for the Section 125 plan?
The plan’s eligibility requirements should be the same as your group insurance plan(s). Employees will become eligible for the Section 125 plan on the same date as they are eligible for the group insurance plan. While FlexBank’s documents include language automatically enrolling employees in this pre-tax program when they sign up for the group insurance, […]
Which employees can & can’t participate in the plan?
Any employee meeting the eligibility requirements can participate in a Section 125 plan. However… Owners: Only owners of a “C” corporation may participate in a Section 125 plan. Sole proprietors, partners within a partnership, owners of an LLC (filing as an S or a partnership), owners of an LLP and more than 2% owners of […]
Are these plans subject to non-discrimination rules?
The IRS extends a safe harbor for certain premium only plans where only pre-tax salary contributions for premiums (no HSA contributions) are provided. However, the ownership rules discussed above are still applicable as well as the eligibility rules (all eligible employees can participate and can elect the same salary reductions for the same benefits regardless […]