Question:
I am trying to learn how to allow an employee to purchase her health insurance with pre-tax dollars. How is that reported to the IRS?
Answer:
First you must have an IRS 125 plan, also known as a cafeteria plan. One way to do this is over the internet. It will cost you $125 or so (maybe less). The plan will impose minimal requirements such as eligibility, open enrollment and fairness. The IRS reporting requirements were dropped several years ago, but be prepared to document everything during an audit. This will allow you and your employees to pay group insurance premiums pre-tax. Paying individual (non group) insurance premiums is sometimes not allowed by state laws. If it is allowed, the insurance company must “list bill” the employer, and you must still have a 125 plan. |
