Florida Health Insurance
Section 125 Cafeteria Plans
and Flexible Spending Accounts (FSA)
Main Page - with a complete listing of carriers and plans
Section 125 plans are simple and convenient solution for paying out-of-pocket health care and dependent care expenses with pre-tax dollars. These are accounts funded by the employer, employees or both. The IRS has strict rules that govern these plans and require careful planning before participating. This applies to all FSAs, not just health. Full-flex cafeteria plans are an "approach" to benefit planning that includes flexible spending accounts (FSAs) and add an additional dimension of employer funding. For example, an employer could create "benefit bucks" for the employee to spend.
Health FSA - For doctor prescribed medical expenses that are not covered by insurance and are eligible under section 213 of the Internal Revenue Code.
Dependent FSA - For the cost of caring for dependants while you work.
Individually Owned Insurance Plans - For premiums for individual or family member's insurance plans (subject to interpretation), such as cancer insurance, disability and others, but not individual insurance plans that are not payroll deducted such as individual health insurance.
Tax Savings - Both the employer and the employee save tax dollars.
Employers will save 7.65 % in FICA taxes.
Employees save state, federal, local and FICA tax. Depending on the state of residence, the savings can be as high as 30%.
“Use it or lose it” Rule:
The section 125 regulations state that employees lose any account money that
they do not use by the end of their plan year. Monies not spent by the employee
in the plan year are returned to the employer.
Section 125 plans are available for
Subchapter S Corporation shareholders above the 2% level may not participate in cafeteria plans, but they may sponsor a plan for the employees. In addition, the family members and close relatives may not participate.
C-Corporation owners can participate and sponsor a plan.
LLC, LLP and Sole Proprietors may not participate in a cafeteria plan. They may sponsor one for their employees. However, if the spouse is a bona fide employee of the firm, he or she may participate and benefit the “other” family members as well.
Qualifying Expense Categories:
Uniform Coverage Rule:
This rule states that whatever the employee decides to place in the plan is available at all times.
Section 125 plans are regulated by the Internal Revenue Service. A company needs to have an IRS approved plan and plan documents. Usually, it is better for the company to have their own plan documents rather than be covered by a Master document. The reason is the master document is not owned by your company and depends on having a relationship with a particular carrier. When things change and another carrier proves to be a better choice then the company is no longer covered by the master plan document. This can leave a company without a plan and has happened to companies without them being aware of this. If you have you own document, then you have more control over your plan. Properly compliant is always the best policy when working with the IRS.
Related Information:
For more information please contact
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Pierre Granger AAI,CIRMS
Group & Individual plans available
Website Address
www.floridahealthinsurance.com
E-Mail: john@floridahealthinsurance.com
PH: (954) 328-6750 Fax: (305) 556-3680