IRS Section 125 allows an employer to set up a plan that authorizes pre-tax employee contributions for insurance premiums, set aside wages for out-of-pocket medical expenses, and pre-tax allowable dependent expenses. We advise employers on the feasibility for Section 125 planning, and then set-up the type of plan that is appropriate for you, using an established, professional third party administrator, starting at around $100.00 (set-up only).

The most common form of Section 125 is a Premium-Only Plan. Relatively simple and inexpensive to setup, they allow pre-tax treatment of employee-paid insurance premiums for health, dental, and other medical coverage's.

Also available are Flexible Spending Accounts (FSA).Under an FSA, employees can choose to set aside money on a use-it-or-lose-it basis to pay for out-of-pocket medical expenses. This election is made yearly, or upon a qualifying event, such as a marriage, change in status, etc. This money can be used to pay for any allowablemedical expenses, including copays, deductibles, chiropractic costs, vision care, eyeglasses, dentures, etc., on a pre-tax basis. You may also set aside money to pay for dependent costs, such as day-care expenses for minor children. Both parents must be working full time in order to be eligible for dependent care deductions.

Flex plans with all of the modules are more difficult and expensive to establish and maintain. As a rule, the tax savings to the employer is mitigated by start-up and compliance costs under 6 employees. Depending on the level of employer contribution for insurance, employees may need the tax savings to make their portion of the premiums affordable.

Without a Section 125 plan, an employer may not pretax withhold ANY premium contribution. Section 125 compliance and audit is becoming an increasingly popular way for the IRS to raise revenue. Yearly compliance testing under a Section 125 FSA is recommended. For additional information, or a quote, email us at info@viehdorfer.com

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