Deemed Section 125 Compensation

[Brenda Wren]

Is there anyone out there who has Plan Sponsors that have "deemed Section 125 compensation"?  And if so, how do you know about it and where is it reported in the payroll records, assuming it is?

[austin3515]

The most important thing to no about deemed 125 compensation is that it is not any kind of "real" Compensation.  It is not taxable. It is not cash. That is where the term "DEEMED" comes in. Really no one would ever want to include it.  So many people think it has to do with pre-tax health insurance payments, or with cash payments in lieu of benefits.  It is neither of those things.

Relius put together this write-up a long long time ago and its the best explanation I have seen from a trusted source (it was 24 years ago) 🙄  I have attached it below.

I see document providers included Deemed 125 all the time based on this misunderstanding.  I think it is dangerous because, as I mentioned, it is not cash, and it is not taxable - meaning it is never captured on payroll. Meaning it will never be taken into account.

Based on the description in this pdf, I have a feeling it is also exceedingly rare.

Comp - Deemed 125 Explanation.pdf

[ReallyChill]

The attachment is "unavailable." I don't suppose you have a link for it instead?

[austin3515]

I do not have a link,  I just googled it to try and find it.  Odd. not sure if others can download?  I can download, which I don't think is related to the fact that I posed it (,my browser wouldn't know that).  I really think this is the most important text:

So, the IRS went on to provide that IRC Section 415(c)(3) compensation can, but is not required, include "deemed Section 125 compensation." "Deemed 125 compensation" is defined as an excludable amount that is not available to an employee in cash in lieu of group health coverage under an IRC Section 125 arrangement because that employee is not able to certify that he or she has other health coverage. An amount is only "deemed 125 compensation" if the employer does not otherwise request or collect information regarding the employee's other health coverage as part of the enrollment process for the health plan.

[Belgarath]

It is a difficult issue. I remember talking to Robert Richter about this many years ago. The gist of his advice was, "If you use it, you'll live to regret it."

[Peter Gulia]

ReallyChill, in my experience, an attachment posted in a BenefitsLink discussion is not available until one has signed in with one's username and password.