One of the most popular cost-savings strategies government finance officers use today is the
Section 125 plan. According to a 2011 Government Finance Officers Association membership survey, 77 percent of respondents use this strategy, and of that group, 86 percent would recommend these plans to others.
(3) Following the original NAIC model statute, it defines a small employer plan as including any insurance whose premium is excluded from federal income tax as an employee benefit, and it notes that paying for insurance through a
Section 125 plan has just this effect.
To help some individuals obtain insurance, the law requires employers with 11 or more employees to set up a "federal
Section 125 plan" (Businesses with 10 or fewer employees don't have to set up a
Section 125 plan, but may choose to do so.)
* Provides a tax credit for small employers for the cost of implementing a
Section 125 Plan ($50 per employee; capped at $2,500)
In addition, non-dependent domestic partner benefits may not be provided through a cafeteria or
Section 125 plan.
Set up a
section 125 plan, where health insurance comes out of an employee's paycheck pre-tax.
Employers should be encouraged to implement a
Section 125 plan (also known as a cafeteria plan or salary reduction plan) to obtain these tax savings.
A
Section 125 Plan, also called a "premium-only" plan, makes the "volunteer" strategy an even more attractive option for employees.
A
Section 125 Plan is known by many names (i.e., 125 Plan, FlexPlan, Flexible Spending Plan, Cafeteria Plan, Set-Aside Accounts, etc.).