What is Section 125 Plan?
What types of employers can establish a Section 125 Plan?
What type of insurance premiums may be paid pre-tax through the Plan?
Does a Section 125 Plan need specific language to allow contributions pre-tax to a Health Savings Account (HSA)?
Must the employer report premium contributions on the employees' W-2?
When can an employer begin this plan?
What is the Plan year?
How do I define the eligibility requirements for the Section 125 Plan?
Which employees can participate in the Plan?
Do all employees have to participate?
What if an employee elects to participate and later changes his or her mind?
What do I do if these FAQs do not answer my particular question?
(A) Section 125 is the part of the Internal Revenue Code that allows employees to pay for certain benefits with pre-tax dollars. The Plan does not provide any benefits as such, but rather "permits" employees to pay for benefits on a pre-tax basis. These plans are commonly called Premium Only Plans (POP).
(A) 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.).
Group Medical insurance
Disability **If the premiums are paid pre-tax, the benefit is taxable.
Group Term Life (max $50,000)
Some Voluntary Insurance
(A) Yes. A contribution to a Health Savings Account (HSA) is not an insurance premium as such. It is a contribution to a savings account. Section 125 Plans traditionally only contain language for insurance premiums. In order to permit employees to contribute pre-tax to an HSA, the plan must be newly implemented with appropriate language or, re-stated to allow employees to contribute on a pre-tax basis.
(Q) Must the employer report premium contributions on the employees' W-2?
(A) Starting in tax year 2012, the Affordable Care Act is requiring employers that file 250 or more 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 annual Form W-2 in box 12 using code DD. Aggregate reportable cost does not include amounts contributed to a Health Savings Account (HSA), the amount of any salary reduction election to a health Flexible Spending Account (FSA), or the cost of coverage under a Health Reimbursement Arrangement (HRA). This reporting will be for informational purposes only and will not affect tax liability. Please note, there is already a separate W-2 reporting requirement for certain health savings account contributions.
The guidance currently gives transition relief for employers that file less than 250 Forms W-2. This transition relief will continue at least through the 2012 Forms W-2 which are required to be furnished to employees in January 2013.
Comprehensive guidance on the W-2 reporting requirement may be found at: http://www.irs.gov/pub/irs-drop/n-11-28.pdf
(A) The sponsoring employer may start the Plan at any time during the year. Regulations require that employees be notified of the plan and given the opportunity to elect whether or not to participate. Additionally, the plan must be in writing and adopted before the effective date. For this reason an employer may not start the plan until they have received the FlexBank Section 125 installation kit. The installation kit will be forwarded directly to you after your application and payment have been received.
(A) The plan year is the 12-month period of time that governs the plan's operation.
(A) Generally, the Plan's eligibility requirements should be the same as your group insurance plan. Employees will become eligible for the Section 125 Plan on the same day as they are eligible for the group insurance plan.
(A) Any employee meeting the eligibility requirements can participate. Owners: Only owners who are also employees 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 an S-Corporation are prohibited from participating. Owners’ Family Members: Rules of attribution apply to S corporations, thus more than 2% owner’s spouses, parents, children and grandchildren may not participate. Family members of C corporations, sole proprietors and partners in a partnership may participate in the plan.
(A) This depends on plan design. Some employers may choose to make participation mandatory. Others may make it voluntary. Another variation is to make participation automatic unless the employee opts out in writing.
(A) Employee elections must be made prior to their eligibility effective date or the beginning of any plan year. Employee elections are binding for the Plan year unless the employee has a change in family status (life event) or a significant increase in cost or modification of coverage under an insurance benefit.
(A) Call FlexBank, Inc. We will be pleased to assist you with any questions you may have. Phone 937.299.5515 ~ Free 888.677.8373.