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Guest FLPhelps

Pre-tax deductions vs post-tax

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My company as had several people on a temporay layoff that were not able to pay their insurance premiums. Now that they are back we need to deduct for the premiums owed. We do have a Section 125 plan so the premiums would be deducted pre-tax however some employees will not be caught up on the amount owed by the final payroll of 2011. Can the missed premiums be deducted in 2012 as pre-tax along with the 2012 premiums?

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No, I don't think so. This was covered in an advanced Cafeteria Plan seminar that I attended, put on by EBIA.

It's the same as if they made after tax contributions via check while they were out on leave.

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No. Under a 125 plan payments for events/expenses in one plan year cannot be carried over to future plan years.

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Two questions maybe someone can assist with...

Is someone is on leave and our last pay date is 12/30/11, can we take a check for 2011 premiums in 2012?

Are there rules around post-tax deductions (life insurance) and/or surcharges?

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Ronibugs: When you say "take a check" i assume you mean can the employee pay with a check. The answer would be yes. The employee is using post tax dollars to pay you with, so not subject to 125 rules. In other words, the payment is being made outside the 125 plan.

I can't think of any rules for post-tax deductions for life insurance. What do you mean by "surcharges"?

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Ronibugs: When you say "take a check" i assume you mean can the employee pay with a check. The answer would be yes. The employee is using post tax dollars to pay you with, so not subject to 125 rules. In other words, the payment is being made outside the 125 plan.

I can't think of any rules for post-tax deductions for life insurance. What do you mean by "surcharges"?

Thank you Morris

So, now I know we can collect arrears from section 125, post-tax, that is good.

We have a tobacco use surcharge and working spouse surcharge, based on medical coverage only.

We are trying to tie up arrears and in previous years, we just deleted them, due to many issues, no processes, not staff, etc. Now, we can collect and I do not know the rules around year end.

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Not so fast. Actions must also comply with plan document terms. While it is possible under the law to make up premiums with separate after tax payments, the plan may be more restrictive. Many plans do not allow after-tax payment at all. Now that you know more about your administrative needs, you should amend the plan to accommodate them.

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The Section 125 FMLA Regs allow contributions to be made up pre-tax in later plan years, so if you're talking about a FMLA leave, it may be permissible.

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