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Am I, as an employer, required to have a Premium Only Plan?

Am I, as an employer, required to have a Premium Only Plan?

Many employers find themselves wondering if they are required to have an IRS Section 125 Cafeteria Plan. We recommend that you have a Cafeteria Plan for the benefit you and your employees. Companies and their employees can realize the tax savings available through IRS Section 125 Cafeteria Plans.

There are two main cases where you would be required to have such a plan.

  1. You are deducting your employees’ portion of the benefit premiums on a pre-tax basis.
  2. You are required by state law.

We, at Tax Free Premiums, want to help you stay in compliance. Therefore, we have listed the states that require Section 125 Cafeteria Plans below. For more information or notice of pending legislation in your state please visit the National Conference of State Legislatures.

StateLaw or ProgramDescription
ConnecticutSB 1484“The bill requires every employer that deducts health insurance premiums from its employees’ pay to give the employees the opportunity to make payments with pre-tax dollars as permitted under IRS Code section 125.” – CGA OLR Bill Analysis
FloridaSB 2534If an employer wishes to participate in the Cover Florida Health Care Access Program a Cafeteria Plan must be established in accordance to IRS Code section 125.
IndianaEmployer Health Benefit Plan Tax CreditTo be eligible for this tax credit an employer must provide a health insurance plan set up with a Cafeteria Plan in accordance with IRS Code section 125.
IowaHealth Care Bill HF 2539The Insurance Commissioner is required to assist small employers (25 employees or less) with setting up Cafeteria Plans.
KansasSenate Bill No. 81Any employer that provides a health insurance benefit where the employee has to pay a portion of the premium can have a Premium Only Plan. This law requires insurance companies to offer to establish a Premium Only Plan for its group health insurance clients.
MarylandSenate Bill 6For employers to qualify for the Small Employer Health Benefit Plan Premium Subsidy Program, they must establish a payroll deduction plan under Section 125 of the IRS code.
MassachusettsChapter 58 Act Providing Access to Affordable, Quality, Accountable Health CareRequires that employers will participate in a payroll deduction program to allow the payment of health benefit plan premium payments by employees to benefit from deductibility of gross income.
Minnesota62U.07 Section 125 PlansAll employers with 11 or more employees must establish and maintain a Section 125 plan to allow employees to purchase  health coverage with pre-tax dollars
MissouriSS#2 SCS HCS  HB 818An employer that provides health insurance must establish a premium-only cafeteria plan.
Rhode IslandS 0448Employers with more than 25 employees are required to have and maintain a cafeteria plan.
TennesseeS 333 & H 3360Employers with cafeteria plans are required to pay health insurance premiums through the cafeteria plans.
UtahS 188For employers to use the Utah Health Insurance Exchange they must have a Section 125 cafeteria plan.

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