IRS Chapter 26, Section 125 / Cafeteria Plans
Under this part of IRS law, employers are allowed to fund certain benefit plans for employees and receive a dollar for dollar tax deduction for the amount they contribute. The employee can also receive these benefits as non-taxable income when correctly established. Certain guidelines must be followed in order to qualify for this deduction and non-compliance can result in hefty fines.
Employer Contribution Rules
Equal and fair is the “name of the game”. Most health insurance providers establish their contracts based on the employer contributing at least 50% of the premium amount for their employees. Both the IRS and the insurance companies have important rules governing the equity of benefit plans offered by employers. We can help you stay in compliance.
HSA – Health Savings Account
A health savings account is a tax-advantaged medical savings account available to individuals who are enrolled in a High Deductible Health Plan (HDHP).
HRA – Health Reimbursement Account
An employer-funded plan that reimburses employees for incurred medical expenses that may or may not be covered by the company’s standard insurance plan. Because the employer funds the plan, any distributions are considered tax deductible (to the employer). Reimbursement dollars received by the employee are generally tax free.
FSA – Flexible Spending Account
An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses, most commonly for medical expenses but often for dependent care or other expenses.
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