ER Subsidy of Health Plan

[Guest chasbo1]

I am attempting to establish the proper election under Section 125 for a Health Benefit Plan that is partially subsidized by the employer. For example, a single employee premium is $280 per month of which the employer contributes $200 and the employee will pay $80. The employer contributes the same $200 regardless of the coverage elected (single, ee + dependent, or full family). The employee does not have any latitude as to the $200 ER contribution; if he participates in the health plan, the $200 subsidy is contributed, if he chooses to waive the health plan coverage, the $200 is NOT available for any other purpose.

Under these circumstances and assuming the employee wishes to pay the premium with pre-tax dollars, is the proper election for $960 ($80 times 12 months) or is it for $3,360 ($280 times 12 months)? It seems like the employer contribution is not elective as it is not available in cash or benefits. Furthermore, under these same circumstances in the past, the gross earnings of the employee electing redirection of salary have never included the employer subsidy for any other purposes like 401(k) wages or in tests for highly compensated.

Any help is greatly appreciated.

[Guest Guest99]

You are correct in that the $80/960 is the amount to be pre-taxed, however, your reasoning is incorrect. The reason is because the plan is a "salary reduction." The employer contribution is not salary.

[Guest Another Guest]

You are correct in that the $80/960 is the amount to be pre-taxed, however, your reasoning is incorrect. The reason is because the plan is a "salary reduction." The employer contribution is not salary.

This being said, what amount is used for non-discrimination testing purposes? Is it the entire premium amount, or just the amount being salary reduced?

[leevena]

The amount being reduced through the 125 plan, not the employer contributions.

[J Simmons]

I agree with leevena regarding the 25% Key Employee concentration test of IRC 125. The other $200/$2,400 the employer is paying towards the premiums is not something the employee has the option, under the plan scenario painted, to take as cash, so it ought not be counted in that concentration test.