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

January 15th, 2011 • 0 Comments • Posted by admin

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.

State Law or Program Description
Connecticut SB 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
Florida SB 2534 If 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.
Indiana Employer Health Benefit Plan Tax Credit To 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.
Iowa Health Care Bill HF 2539 The Insurance Commissioner is required to assist small employers (25 employees or less) with setting up Cafeteria Plans.
Kansas Senate Bill No. 81 Any 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.
Maryland Senate Bill 6 For 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.
Massachusetts Chapter 58 Act Providing Access to Affordable, Quality, Accountable Health Care Requires 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.
Minnesota 62U.07 Section 125 Plans All 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
Missouri SS#2 SCS HCS  HB 818 An employer that provides health insurance must establish a premium-only cafeteria plan.
Rhode Island S 0448 Employers with more than 25 employees are required to have and maintain a cafeteria plan.
Tennessee S 333 & H 3360 Employers with cafeteria plans are required to pay health insurance premiums through the cafeteria plans.
Utah S 188 For employers to use the Utah Health Insurance Exchange they must have a Section 125 cafeteria plan.


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