Section 125 Rules

By implementing a pop plan an employer is allowing employees to pay their portion of the employer health insurance premiums with pre tax dollars saving employees up to 40 on income taxes alone.

Section 125 rules. A 125 cafeteria plan is a written plan that allows employees to elect between permitted taxable benefits such as cash and certain qualified benefits. Internal revenue code irc section 125 allows employers to adopt a written plan to let employees elect to pay for certain benefits including group health plan coverage on a pre tax basis through salary reductions. If an employee makes the election before the start of the plan year and other 125 requirements are satisfied the employee s election of one or more qualified.

Once a plan is created the benefits are available to employees their spouses and dependents. Cafeteria plans include both taxable and nontaxable benefits. The employee can take the money and buy the insurance they need or they can keep the money as part of their paycheck.

If taken as a. A plan does not fail to be a qualified benefits plan merely because it includes an fsa assuming that the fsa meets the requirements of section 125 and the regulations thereunder. In most cases the excluded benefits aren t subject to federal income tax withholding social security medicare federal unemployment futa tax or railroad retirement tax act rrta taxes and aren t reported on form w 2.

A qualified benefits plan means an employee benefit plan governing the provision of one or more benefits that are qualified benefits under section 125 f. The irs section 125 requirements include that the business offers money to the employees that can be used to purchase health insurance benefits on a pretax basis. These rules exclude all or part of the value of certain benefits from the recipient s pay.

The total dependent care benefits the employer paid to the employee or incurred on the employee s behalf including amounts from a section 125 plan should be reported in box 10 of form w 2. Irs code section 125 allows an employer to set up a premium only plan pop where an employee s insurance premium contributions can be deducted from his or her payroll on a pre tax basis. A cafeteria plan also known as a section 125 plan is a written plan that offers employees a choice between receiving their compensation in cash or as part of an employee benefit.

Section 125 also permits employees to contribute pre tax reductions to an hfsa or dcap and certain other benefits. Depending on the circumstances and details. This section discusses the exclusion rules that apply to fringe benefits.