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All the benefits that come with offering a Section 125 Cafeteria Plan also come with a level of accountability as well. A large portion of the Section 125 of the IRC deals with the regulation of cafeteria plans, which allow employees to contribute a part of their paycheck to paying for group benefits without paying taxes, including the regulation of plans that  businesses need to be in compliance with to in order to avoid penalties.

The IRC has made compliance to these regulations mandatory so that businesses and company management abuse of the tax free nature of the plan is fairly easy to detect. The regulations that are in place have been known to change quite often. Quite regularly businesses that thought they were in compliance find themselves in the difficult position of paying penalties because a recent change put them outside of these regulations.

When a company finds itself being audited their first thought is usually a prayer that they are in compliance. All you need to worry about is that your documents were written with the newest regulations in mind. The problem arises from cost and time. You don’t have time to pay attention to the most recent changes in tax law but paying an attorney to update your document each time there is a small change in the wording costs you an arm and a leg.

There is more to staying compliant than federal law. Most states also have chosen to regulate cafeteria as well. However, for the most part, these regulations are aimed at increasing the quality and coverage that goes along with them rather than regulating administration. This allows employers to increase employee retention and gives employees access to benefits in periods of economic difficulty. Along with these benefits there are also significant tax benefits, including payroll and income taxes.

Indiana, Florida, Utah, Minnesota, and Massachusetts are the states that currently have regulations for Section 125 Cafeteria plans in place. It is always a good idea for a business to find out if they state in which they operate has, or will have, additional regulations, and whether they are mandatory or voluntary.

Section 125 Premium Only Plan Regulations, state and federal, are a necessary element to the benefits received by the plan. Businesses need to make sure they are in compliance, not only in the event of an IRS audit, but in the event of a state audit as well. A business should make sure that someone is designated in their human resource department that is responsible for ensuring the company is compliant to all applicable regulations.