Employee health insurance premiums

[Guest afreeling]

An employer has a Cafeteria Plan that allows them to salary reduce an employees pay on a pretax basis their cost of the health insurance. The employer realizes that they had been salary reducing the incorrect amount for 2006, and now want to charge the participants the difference. What type of issues will this present? Can it be done through the Cafeteria Plan? Any assistance would be appreciated. Thanks.

[LRDG]

Issue it presents is the collection of premiums in current tax/plan year for payment of premiums in a prior tax/plan year.

The IRS regs don't specifically address this situation.

I would correct it via 2007 pre-tax deductions. I would document the '07 adjustment and consider it 'administrative relief' based on the '06 error in premium deductions. The correction should be well documented, and the '07 deductions considered a one-time adjustment.

[Guest afreeling]

Thank you LRDG. I appreciate your assistance.

[LRDG]

I would also correct employee payroll deduction agreements. good luck.

[Chaz]

I would make sure that any correction that you do complies with your state's withholding laws.