Now employers can offer a Health Savings Account (HSA) as part of their employees’ Section 125 Cafeteria plan.

When did the section 125 cafeteria plan start?

One of these plans, called a section 125 cafeteria plan, has been in existence since 1978 and offers some interesting advantages. What Is a Section 125 Cafeteria Plan? 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.

Who is the administrator for the section 125 plan?

Employers must hire and partner with a qualified section 125 third-party administrator, who can provide the most up-to-date documentation for plan setup and update the employer on the latest requirements necessary for compliance.

Can a cafeteria plan include a health savings account?

All the IRS requires for tax-advantaged treatment of Cafeteria plans – including a Health Savings Account – is that a written plan document be completed by and on file with the employer. Employers with an existing Section 125 plan document must update it to include the HSA and any new limited FSA options.

What are qualified pre-tax benefits under Section 125?

And, one qualified pre-tax benefit could be anything from health and disability insurance to Flexible Spending Accounts (FSAs), Dependent Care Assistance Plans, Health Savings Accounts (HSAs), or contributions to a group health plan. Let’s summarize here. Your business is subject to Section 125 requirements if:

Why do small businesses need a section 125 plan?

Many small business owners provide fringe benefits to their employees by establishing a Section 125 Plan. Also called a cafeteria plan, a Section 125 plan affords tax advantages to businesses and their employees. The tax savings enable employers to provide benefits at a reduced cost.

Do you need health insurance for a section 125 cafeteria plan?

It’s important to note that a Section 125 Cafeteria Plan does not provide health insurance. Instead, it allows employees to use pre-tax money to choose and pay for the types of insurance coverages that are most meaningful to them. To qualify as a Cafeteria Plan, the plan must include: