When it comes to attracting and retaining talent, most employees expect their company to have some sort of health insurance plan that is accessible and affordable for themselves and their families. Most organizations offer their employees access to group health plans through pre-tax salary deductions.
Pre-tax deductions, such as health insurance or a health savings account, are appealing to potential new hires and provide substantial savings for your employees. But before your organization can offer this benefit, you need to file a Section 125 plan document with the Internal Revenue Service (IRS) for pre-tax treatment of insurance premiums.
According to the IRS, “A Section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable.”
Because it’s so common for companies to have filed a Section 125 plan document, payroll providers don’t typically ask you to verify your company’s documentation. However, not filing this document could mean that your entire benefits plan will be set up as an after-tax plan, causing financial harm to your organization and employees due to penalty fees. In some cases, the pre-tax deductions may be disallowed from the beginning, leading to an IRS assessment of overdue back taxes, as well as interest and additional penalties.
If your organization is unsure about whether or not they filed a Section 125 plan document, or if you’d like to have a more in-depth discussion about employee benefit plans, contact the experts at SST today for personalized support and guidance.