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Section 125 POP & Individual Plans….Have You Heard of The Term “Double Dip”?

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Section 125 POP & Individual Plans….Have You Heard of The Term “Double Dip”?

Our office has been flooded with calls and e-mails concerning the ability to allow employees to run their premiums for personal plans through a Section 125 POP to avoid income tax.  Unfortunately ACA specifically identifies and prohibits the use of a Section 125 Plan for premiums through the federal exchange.

There has been wide publicity of the substantial cost reduction of premiums due to subsidies.  IT WILL BE HUGE!!  However for many individuals that currently purchase this through their employer with the benefit of a Section 125 POP Plan they are already realizing tax savings in the range of 15%-40%.  The argument is that you cannot receive a tax subsidy for one part and a tax deduction for the other part of the same item.  The IRS refers to this as “Double Dipping”, and is a prohibited transaction.  ACA specifically addressed this issue when drafted in 2010 but where the subsidies will not be available until Jan. 1st, 2014 it hasn’t been an issue until now.

We discussed in detail in a post back in June concerning IRS Section 125 POP treatment under ACA.   If you have a current document with taxfreepremiums.com the language is current and does not require an amendment.  If you have a document from another provider that has added language specific for individual or personal premium deductions you will need to update or amend your policy by the end of this year.

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