What is IRS Code Section 125?

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.

Is Section 125 Mandatory?

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. However, that tax-advantaged treatment is not automatic.

What is the IRS mailbox rule?

Simply stated, the IRS’ Mailbox Rule treats payments made through the mail, postmarked on or before the due date, as being received on time. The IRS’ Mailbox Rule requires that a timely filed tax document or payment is: postmarked on or before the filing date; and. actually delivered by the US Post Office.

What are considered Section 125 deductions?

Section 125 is the section of the IRS tax code where the items that can be deducted from employee pay on a pre-tax basis are defined. In the context of Section 125, “pre-tax” means that a deduction is exempt from Federal Income Tax Withholding, Social Security and Medicare Taxes.

Who is not eligible for Section 125 plan?

The Section 125 rules specifically prohibit the following individuals from participating: • Self-employed individuals; • Partners within a partnership; and • More than 2 percent shareholders in a subchapter S corporation (S corporation).

What is included in a section 125 cafeteria 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. Options may include cash or other taxable benefits, like supplemental life or disability insurance.

What is a 125 premium only 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.

Does the IRS really check postmarks?

Also, the postmark will only count toward your benefit if it’s a U.S. Postal Service postmark. This isn’t recommended if you need to mail something to the IRS; doing so won’t get the sender’s receipt postmarked, and it will make it difficult to prove timely mailing if necessary.

What proof does IRS accept for mailing?

In other words, the IRS will only accept registered or certified mail as sufficient proof of mailing. If you mail your tax return via first class mail and it gets there, awesome.

What benefits are included in section 125?

Here are the qualifying benefits you can include in your section 125 cafeteria plan document:

Accident and health benefits (not including Archer medical savings accounts)
Adoption assistance.
Dependent care assistance.
Group-term life insurance coverage.
Health savings accounts (HSAs)

Who is not eligible for cafeteria plan?

Unlike the other business types, spouses, children, parents, and grandparents of more-than-2% shareholders may NOT participate in the cafeteria plan. Like partners in a partnership, more-than-2% shareholders may be able to make a tax deduction outside the cafeteria plan for medical and long-term care expenses.

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

Core Documents provides employers with everything they need to establish an IRS- and DOL-compliant Section 125 benefits plan in PDF format for just $99. This cost reflects a one-time setup fee, not an annual charge. For more information on ordering, including a fax option, go to the Core125 package page.

What does Section 125 of the Internal Revenue Code mean?

Section 125(f) defines a “qualified benefit” as any benefit which, with the application of § 125(a), is not includable in the gross income of the employee by reason of an express provision of Chapter I of the Internal Revenue Code (other than §§ 106(b), 117, 127 or l32).

Can a common law employee participate in a section 125 plan?

Internal Revenue Service (IRS) regulations. Under these rules, a Section 125 plan must have a written plan document and can only offer certain qualified benefits on a tax-favored basis. While self-employed individuals may maintain a Section 125 plan for their employees, only common law employees may participate in the plan.

When does Section 125 ( I ) come into effect?

Section 125(i) is effective for “taxable years” beginning after December 31, 2012. Prior to the effective date of § 125(i), plan sponsors imposed limits on the amount of salary reduction contributions that employees may elect to health FSAs, but there has been no statutory limit.

Can a domestic partner have a section 125 plan?

Section 125 plan cannot provide non-taxable benefits for an employee’s domestic partner who is not a tax dependent. Additionally, although individuals who are not considered employees, such as self-employed individuals,