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Health Insurance – Premium Only Plan

Question:

Our company has a Section 125 – Premium Only Plan – so we can take employee’s health insurance contributions out on a pre-tax basis.  Do all employees have the ability to elect that their premiums come out pre-tax or only certain groups?

Answer:

Employees of regular corporations, S corporations, limited liability companies (LLCs), partnerships, sole proprietors, and non-profits can participate in a Section 125 POP.  The Code does prohibit sole proprietors, partners, members of an LLC, and individuals owning more than 2% of an S corporation from participating.  Each person electing to participate must sign off on the election (typically during open enrollment) and must keep that election for the entire year, unless there is a qualifying event.

Regardless of who can participate, these plans are a great opportunity for employees to save up to 40% on their federal income taxes and employers benefit by reducing their tax liability.  A plus for both employees and companies!

Remember that to have an eligible plan, the company must have a plan document and summary plan description in place.  These documents must be kept on file with the employer.

Strategic HR, inc. is ready to assist you with any of your challenging situations around Benefits and Compensation. We offer assistance with everything from job descriptions to policy development to help address your difficult issues that impact employee compensation or benefits. Please visit our Benefits and Compensation for more information on how we can assist you.