IRS Plan 125 (long question) - please help?
My co has been deducting our medical insurance as pre-taxed for years. When I have started with the co. we have been using QuickBooks for our payroll, then we switched to ADP Payroll for that. Now, the person who has trained me told me that our medical insurance is pretaxed. And we left it at that. I have never filed any reports to IRS (no has ADP). Now we are setting up life insurance and looking at their paperwork I read that ..."to utilize pre-tax deductions, the client company must establish and maintain a section 125 plan and comply with all relevant IRS regulations." ! OMG! I don't know if we have a plan set up with IRS, and we have never sent them any reports. I am so confused... What should I do? I am scared to tell my bosses about this problem... Does anyone know if a co must file any kind of paperwork with IRS to (1) set-up this Section 125 Plan & (2) what kind of reports I need to send to IRS to report medical and life insurance deductions that were made pre-taxed.
Public Comments
- You might or might now need to file a form 5500 for your company. I've attached an article about form 5500 and sec 125 plan and reporting requirements.
- First of all, relax. This is a common problem. Nothing is really filed with the IRS, but there are forms that you need to have in your possession in case IRS ever checks. A good summary of the types of 125 plans can be found here: http://www.coredocuments.com/docs/125_Employer_Guide.pdf Of course, this company is wanting to sell you on their services, so keep that in mind. One thing of interest, though, is that on page 5 of the document, they state that they can amend and restate old plans back to the original start date. They say, "It's not unusual for a group to misplace a Plan Document and need to replace it". So please don't lose any sleep over this. Find out approximately when your 125 plan started, and use a company such as this to amend and restate your plan back to the beginning, replacing the missing documents (which, for all you know, could be sitting in a safe deposit box somewhere). Then start complying with the law now. Explain to your bosses that you just found out that any plan made before 2002 needs to be updated, then find a company that will help you get everything set up correctly. Please note: I am not affiliated with the company whose link I furnished, nor with any other company that sets up 125 plans. I just want to relieve a bit of your anxiety, and let you know that you can get into compliance fairly quickly, and at a reasonable cost.
