Section 125 Regulations

Section 125 of title 26 united states code created a specific exception to the tax laws that permitted employers and employees to establish flexible benefits programs that include health insurance.

Section 125 regulations. These benefits may be. A section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable. 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.

B exception for highly compensated participants. 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. Any cafeteria plan in existence on february 10 1984 which failed as of such date and continued to fail thereafter to satisfy the rules relating to section 125 under proposed treasury regulations and any benefit offered under such a cafeteria plan which failed as of such date and continued to fail thereafter to satisfy the rules of section 105 106 120 or 129 under proposed treasury regulations will not fail to be a cafeteria plan under section 125 or a nontaxable benefit under section.

A section 125 plan is part of the irs code that enables and allows employees to take taxable benefits such as a cash salary and convert them into nontaxable benefits. 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. There are many advantages of setting up a premium only plan for employees.

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. 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. Except as provided in subsection b no amount shall be included in the gross income of a participant in a irs section 125 cafeteria plan solely because under the plan the participant may choose among the benefits of the plan.

For example if the employer does not have a written plan document or if the plan document fails to comply with section 125 of the internal revenue code including operational failures then the plan may fail to maintain its status as a cafeteria plan resulting in tax consequences for the employer and employees. A plan offering only a choice between taxable benefits is not a section 125 plan.