1. WHAT IS SECTION 125?
Section 125 is part of the Internal
Revenue Code that allows employees to convert a taxable cash benefit (salary) into
non-taxable benefits. Under a Section 125 plan, you may choose to pay your
medical premiums, unreimbursed medical expenses and dependent child care before any taxes
are deducted from your paycheck.
2. IS SECTION 125 LEGAL?
Yes. Even though Section 125 may
sound "too good to be true," the program is legal and beneficial. The United
States Congress created Code Section 125 in an effort to make benefit programs
affordable for employees. Code Section 125 was established in the Revenue Act of
3. HOW CAN SECTION 125 WORK FOR ME?
Your employer's plan (authorized by Section
125) can make your benefit plan more affordable. You can pay
your medical premiums,
unreimbursed medical expenses, and dependent day care with pre-tax dollars. By paying
these expenses before you pay taxes, you lower your taxable income, which results in more
take home pay.
4. WHAT ARE PRE-TAX DOLLARS?
Pre-Tax dollars are dollars you pay for
qualifying expenses under your employer's Section 125 plan. These dollars are
deducted from your gross earnings - before taxes are taken out.
5. WHAT BENEFITS CAN I PAY FOR WITH PRE-TAX DOLLARS?
Section 125 allows certain benefits to be
deducted on a pre-tax basis. Specifically, medical premiums, unreimbursed medical
expenses, and dependent day care.
6. HOW WILL THIS AFFECT MY PAYCHECK?
The following illustration is an example
of how the plan can help you make the most of your paycheck. Your individual results may
vary subject to your income and tax situation.
|Tax Savings of $30.00
7. HOW DO I PARTICIPATE?
Speak with your Human Resources Department
for instructions on how to enroll on-line for your employer's Section 125 plan.
8. DO I HAVE TO PARTICIPATE?
No. You are under no obligation to
participate in this plan. However, you should speak with your Human Resource Department to
see what forms you are required to complete to waive participation.
9. CAN I ENROLL IN A SECTION 125 PLAN WHENEVER I WANT TO?
Your employer's Section 125 plan is an
annual plan. You must enroll/waive participation in the plan during the specified
10. CAN I CHANGE MY ELECTIONS IN THE SECTION 125 PLAN AT ANY
TIME DURING THE PLAN YEAR?
No. You cannot change your elections
during the plan year, except for certain specified changes in family status. Those changes
include marriage, divorce, death of a spouse, death of a child, birth or adoption of a
child, or termination of a spouse's employment. You must inform your employer within 30
days of the status change.
11. ARE THERE ANY RISKS IN PARTICIPATING IN THE PLAN?
You must be conservative when utilizing
unreimbursed medical or dependent day care expenses in the plan. Any money not used by the
end of the plan year will be forfeited.
12. WHO IS OFFERING ME THIS PLAN?
Your employer is offering the plan and has
endorsed it to provide you with an enhanced employee benefit package.