IRC Section 125 Administration

Our IRC Section 125 Administration refers to the management and compliance responsibilities associated with implementing and maintaining a Section 125 Cafeteria Plan, also known as a Flexible Benefits Plan or a Premium Only Plan. Section 125 of the Internal Revenue Code (IRC) allows employees to contribute a portion of their pre-tax salary to pay for certain qualified benefits, reducing their taxable income and potentially lowering their overall tax liability.

Documentation

CBG assists employers must establish a written plan document that outlines the terms and conditions of the Cafeteria Plan, including eligibility requirements, benefit options, contribution limits, enrollment procedures, and other administrative details. This document must comply with IRS regulations and be made available to employees.

Employee Communication

CBG assists employers communicate the availability of the Cafeteria Plan, plan details, enrollment periods, and employee contribution options through various channels such as employee handbooks, benefits meetings, written notices, and electronic communications.

Plan Design

CBG assists employers design a Section 125 Cafeteria Plan to offer eligible employees a choice between taxable cash compensation and a selection of qualified benefits on a pre-tax basis. These benefits may include health insurance premiums, dental and vision coverage, flexible spending accounts (FSAs) for healthcare and dependent care expenses, and other eligible benefits.

Enrollment and Election Changes

CBG assists employers establish enrollment periods during which employees can elect or change their benefit selections. Employees make their elections through a formal enrollment process, typically using enrollment forms or online portals provided by the employer.

Payroll Deductions:

CBG assists employers deduct employee contributions for Section 125 benefits from their pre-tax salary, reducing their taxable income for federal income tax, Social Security tax, and Medicare tax purposes. These deductions are made on a regular payroll schedule and must be accurately calculated and reported.

Compliance:

CBG assists employers must ensure compliance with IRS regulations governing Cafeteria Plans, including nondiscrimination testing, annual reporting requirements (Form 5500), timely remittance of employee contributions to benefit providers, and proper documentation of plan operations.

Record Keeping

CBG assists employers to maintain records related to the administration of the Cafeteria Plan, including plan documents, enrollment forms, election notices, contribution records, and other relevant documentation. These records must be retained for the required period and be available for IRS review upon request.

Effective IRC Section 125 Administration requires careful planning, attention to detail, and compliance with regulatory requirements to ensure that the Cafeteria Plan operates smoothly and provides maximum tax benefits to employees.