Section 125 of the Internal Revenue Code, commonly referred to as Flexible Compensation, allows an employee to pay certain insurance premiums (health, dental, accident, cancer, etc.) with before tax dollars. Current plans and/or coverages are not affected. Only the way in which premiums are paid will change. This is provided to you and your employees at absolutely NO COST.
1) A Section 125 Plan reduces an employee’s taxable income by deducting all qualified insurance premiums before income taxes are calculated. This method reduces FICA, Medicare, and Federal Withholding taxes.
2) Federal Tax legislation no longer allows an individual to deduct insurance premiums until they have incurred 7.5% of gross income for medical premiums. Therefore, an individual can only claim the amount above 7.5% on his/her year-end taxes.
To participate an employer simply adopts a Section 125 plan. To qualify you must file the approved plan documents with the Internal Revenue Service and allow each employee to sign an election form. At the end of the plan year you must file a Form 5500 with the Internal Revenue Service.
We will provide you with the necessary plan documents and provide revisions required by the Internal Revenue Sevice to maintain compliance and assist each employee with his/her election form. Your payroll office will receive copies of all enrollment and other required forms. Most importantly, we will assist you in completing your annual Section 125 Flexible Compensation reports.