Does a Section 125 have to give employees the option of having medical

[Guest jnoel]

Does a Section 125 have to give employees the option of having medical / dental plan contributions deducted after tax?

[JWK]

Not required. Sometimes offered.

[Guest jlcowden]

If you are not providing a pre-tax option and have a 125 plan you are missing a natural opportunity to save employees FICA and Fed'l tax $ and the employer FICA $.

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jlcowden

[Lisa Hand]

jnoel: The definition of a cafeteria plan is a written plan under which all participants are employees and the participants may choose among 2 or more benefits consisting of cash and qualified benefits.

Are you asking if someone can for whatever reason waive participation in the Cafeteria Plan and take their premium after tax?

[Guest jnoel]

Yes that is what I am asking...does the plan have to give them that right? I want the medical coverage, but want the premium deducted "after tax". Thanks for your input.

[Lisa Hand]

A Section 125 Plan must give the choice between pre-tax and cash (after tax), so the answer is yes.

[JWK]

The employer does not have to offer employees the option to purchase medical coverage with after-tax dollars. The choice under a cafeteria plan is between cash and a qualified benefit. So, the cafeteria plan choice is:

1. take the full amount of compensation, or

2. direct some of the compensation to the purchase of medical coverage--and not get taxed on the portion of the compensation so directed.

We needed a section 125 to prevent the employee in number 2 from being taxed as if he received the compensation under the constructive receipt rules.

The cafeteria plan rules do NOT require an employer to offer the third choice of taking the full amount of compensation and THEN directing it to the purchase of a benefit. Some employers offer this third choice, but the cafeteria plan rules do not require it.

[Guest Pat Cook]

The messages you received are correct as to your choices for employees options. owever, please take note of the fact that it is an annual election and may not be withdrawn easily, if you do offer pre-tax. I find that employers are not always clear in their understanding of these requirements.

[GBurns]

jnoel ....What is the benefit of paying your medical premium after tax ??

[Guest EMK]

One may elect after tax deductions to avoid all of the problems we have all encountered with pre-tax benefit "contributions." I have seen 50% or more of employees elect after-tax when given a choice.

After tax can also relieve the headache of differences in the timing of open or annual enrollment periods for working couples.

All of this is contingent, though, on whether the plan allows non-qualified family status changes for those who elect after-tax.

[Guest CLKeown]

I know this is an old thread, but I need some clarification here. I am a "payroll" person who seems to get asked a lot of benefits questions - I won't even pretend to be qualified to answer most of them!

My boss is asking the following:

We have a Medical and Dental plan under which the deductions are taken on a Pre-tax basis.

1 - Is it necessary to offer them a choice of pre-tax or post-tax deduction of the premiums?

2 - If we are not required to give them a choice, is it necessary to require our employees to sign a form that acknowledges that all Medical and Dental premiums are withheld on a pre-tax basis?

3 - If it is necessary to have a signed acknowledgement or offer them a pre-tax or post-tax choice, is this something that must then be done every year by every employee?

I really appreciate any plain english help you can provide on this topic.

Thank you,

Carole Keown

[Joe Priselac]

Carole,

JWK is correct when he stated that there is no statutory requirement to offer health benefits on an after-tax basis. You do not need people to elect into a POP plan if you operate it on a negative enrollment basis. They only "elect" not be in the plan after they have received proper notification, usually when they become eligible for the health plan. Their initial decision does not need to be redone each year. This scenario only applies to POP plans and should not be used with Flexible Speding Account type plans.

Just to add my two cents to the earlier discussion. From an employee relations point of view it placates what I call "the Rasputins", which every company seems to have, to make the plan "voluntary". I have had employees tell me they felt it was their moral obligation to pay the maximum tax possible. These are arguments that are not won by logic. Negative enrollment solves 99% of the problem and still allows for "choice.