IRS Requirement for pre-taxed employee benefits. If you are an employer wanting to allow your employees to pay group health and other insurance premiums with pre-tax salary deductions, the answer is yes, you need a Section 125 plan document.

What does section 125 mean on a paycheck?

A Section 125 Plan is a written plan that gives employees the option to choose between cash and qualifying benefits that are pre-taxed. The employee usually pays less in federal income and/or FICA taxes because the employee’s contribution is withheld before taxes.

What is Section 125 of the Internal Revenue Code?

Code Section 125 allows employers to establish a type of tax savings arrangement, called a Section 125 plan or cafeteria plan, for their employees. A Section 125 plan provides employees with an opportunity to pay for certain benefits on a pre-tax basis, allowing them to increase their take-home pay.

What qualifies as a section 125 plan?

A Section 125 Cafeteria Plan is an employer-sponsored benefits plan that lets employees pay for certain qualified medical expenses – such as health insurance premiums – on a pre-tax basis. Typically, they can use the pre-tax money to pay for health insurance premiums, retirement deposits, or other benefit options.

What is the difference between a cafeteria plan and a Section 125 plan?

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. Employer contributions toward an employee’s cafeteria-plan benefits are not taxed.

How much does it cost to set up a Section 125 plan?

Section 125 Plan Document package $99. The IRS requires a Section 125 Plan Document so that employees can pay for health premiums, FSA contributions, and other group benefits with tax-free payroll deductions. Employers save an average 8% to 10% in payroll taxes, too.

What is a premium only Section 125 plan?

A Section 125 premium-only-plan (POP), is a cafeteria plan which allows employees to pay their health insurance premiums with tax-free dollars. Using a Section 125 POP to pay for insurance premiums benefits both employers and their employees.

Do you have to file a section 125 tax return?

A Section 125 plan must give employees a choice between taxable and non-taxable benefits. A written plan that only contains taxable benefits is not eligible for cafeteria plan benefits. Employees, their spouses, and their dependents can receive these benefits. While the benefits are not taxed, they are required to be reported on an income tax form.

What are the requirements for a section 125 plan?

A Section 125 plan that includes a welfare benefit plan with over 100 recipients still needs Form 5500 filed. Eligibility. A Section 125 plan must give employees a choice between taxable and non-taxable benefits. A written plan that only contains taxable benefits is not eligible for cafeteria plan benefits.

What is Form 5500 for Section 125 plan?

A Section 125 plan that includes a welfare benefit plan with over 100 recipients still needs Form 5500 filed. A Section 125 plan must give employees a choice between taxable and non-taxable benefits.

How often should a section 125 plan document be renewed?

Core Documents advises clients when there is a change in the law; you let us know of any change to your group benefit plan. Ideally, a Section 125 plan document is renewed at least every five years. It is not unusual for a group to lose track of a plan document and need to replace it.