Section 125 Insurance Plans

[Guest Tom W.]

If the only provision in the Section 125 Plan is pre-tax payment of health and dental insurance premiums are the premiums calculated the same as Medical Reimbursement Accounts and Dependent Care Reimbursement Accounts where you will have 24 or 26 or 52 pays in each plan year or just expensed each pay period. With a Medical Reimbursement Account and Dependent Care Reimbursement Account the plan year would start on, say, January 1st, and allow expenses incurred on or after January 1st, but the first pay of January might happen to include hours worked in the last plan year. With the insurance premium the premium is actually due starting the 1st of January even though the first pay of January might happen to include hours worked in the last plan year. The basis of the question is that we implemented a new dental plan as of January 1, 2003. The first pay on January 2, 2003 was for the last two weeks of 2002. Are we required by Section 125 deduct dental premium from the January 2nd pay or to begin deductions in the following pay using January 1st as the first day premiums are due?

[papogi]

You are not required to deduct on Jan 2. The IRS gives no real guidance on how to do this. To illustrate something similar, it is legal for people paid bi-weekly to have 125 deductions taken only twice monthly. The IRS doesn't pay lots of attention to how the deductions are taken. As far as I know, you could take the deduction on Jan 2, and it would be the first deduction for 2003, or you could wait until the second pay in January and end up only with 25 pay periods (if bi-weekly) over which the 125 elections are deducted. Does anyone know otherwise?