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Connect Section 125 Plan Document

Pretax benefit compliance for your business

If  you offer health insurance benefits paid through pretax payroll deductions, your company needs an official Section 125 plan document to maintain compliance with IRS regulations. 

For our ConnectPay clients, our Connect Section 125 Plan Document provides a quick, easy, and affordable way to get a comprehensive, customized solution. Our experts will ensure your plan meets all federal requirements, so you can confidently offer pre tax benefits while minimizing compliance risks. 


What is a Section 125 Plan Document?

A Section 125 Plan Document is a written plan that allows companies to offer their employees tax-advantaged benefits in a compliant manner. It is required by Section 125 of the Internal Revenue Code.

Essentially, it certifies that your organization has an approved "cafeteria plan" in place. A cafeteria plan gives employees the ability to pay for qualified benefits like health, dental, and vision insurance premiums using pretax dollars deducted from their paycheck.

By paying for these employer-sponsored benefits on a pretax basis, it reduces the employee's taxable income. This means they end up owning less in taxes, effectively making the benefits more affordable. Employers also save by paying less in payroll taxes on the pretax deductions.

Why do I need a Section 125 Plan Document?

A Section 125 Plan Document is a written plan that outlines the rules, benefits, and guidelines for offering pretax benefits to employees. If you cannot immediately present your Section 125 Plan Document in the event of an audit, you could be subject to any or all of the following:

How Connect Section 125 Works:

Tell us about your benefits
Get your custom plan document
Electronic Signature
Inform your employees

Frequently Asked Questions

Here are the most common questions (and answers) we're asked by small businesses about Section 125 Plan Documents.

Is My Business Eligible for a Section 125 Plan?

The good news is that Section 125 plans are designed to be accessible to businesses of all sizes!  The IRS lays out minimal eligibility requirements, making them a viable option for most businesses. Here's a breakdown of who can offer and participate in a Section 125 plan:

Eligible Employers:

  • Business Size: There is no minimum or maximum employee size requirement for offering a Section 125 plan. This means businesses of all sizes, from sole proprietorships to large corporations, can sponsor a plan for their employees.
  • Tax Status: Generally, any employer subject to U.S. income taxes can establish a Section 125 plan. This includes private sector businesses (corporations, partnerships, LLCs) and non-profit organizations, as well as public sector employers like government agencies.

Eligible Employees:

  • Employment Status: Generally, only common-law employees qualify to participate in a Section 125 plan. These are typically individuals with benefits tied to their employment and who receive a W-2 form at tax time. Independent contractors or temporary workers wouldn't be eligible.
  • Tax Dependency: Employees can also elect coverage for their spouse and dependents under the age of 27, as long as they qualify as tax dependents.

Who is Not Eligible?

There are very few limitations on eligibility for Section 125 plans. However, a couple of scenarios can exclude participation:

  • Former Employees: While some plans may allow former employees to participate for a limited time, the plan cannot be designed primarily to benefit them. The main focus must be on current employees.
  • Non-Taxable Employers: Employers who are not subject to U.S. income taxes, such as certain foreign entities or government instrumentalities, wouldn't be eligible to offer a Section 125 plan.

Remember: It's always advisable to consult with a tax professional to confirm your specific eligibility for a Section 125 plan. They can address any unique circumstances your business may have.

How Long Does the Section 125 Plan Document Process take?

The good news is that getting a Section 125 plan document in place for your business can be a swift and straightforward process, especially when you partner with ConnectPay. Here's why:

  • Streamlined Approach: ConnectPay offers pre-drafted Section 125 plan documents that meet all IRS requirements. These templates can be easily customized to fit the specific needs of your business, eliminating the need to start from scratch.
  • Expert Guidance: Our knowledgeable payroll specialists are here to guide you through the entire process. They can answer your questions, explain your options, and ensure all the necessary information is included in your document.
  • Efficient Communication: We understand the importance of clear and timely communication. Our team will keep you informed throughout the process and ensure you have a clear understanding of the next steps.
  • Technology Advantage: ConnectPay leverages technology to streamline document creation and review. This allows us to expedite the process without compromising on quality or accuracy.

In many cases, ConnectPay can have your Section 125 plan document finalized and ready to use within 7-10 days.  This means you can start offering your employees the tax-saving benefits of a Section 125 plan quickly and efficiently.

Why Use a Payroll Provider Instead of Insurance Brokers for Managing Section 125 Plan Documents?

There's no denying that insurance brokers offer valuable guidance on employee benefits. However, when it comes to Section 125 plan documents specifically, payroll providers like ConnectPay hold a distinct advantage.

Streamlined Integration:  Payroll is what we do best, and Section 125 plans become a seamless extension of that expertise.  Our plan documents integrate effortlessly with your existing payroll system, eliminating the need for complex workarounds or separate software. This translates to:

  • Reduced Errors: By having everything under one roof, you minimize the risk of errors that can occur when data needs to be transferred between separate systems.
  • Effortless Administration: Payroll deductions for pre-tax contributions are handled automatically, saving you time and ensuring accuracy. Your employees can easily manage their elections within the familiar payroll system they already use.
  • Real-Time Visibility: You have real-time access to plan data and reports within your payroll system, allowing for better monitoring and informed decision-making.

Focus on Payroll, Not Paperwork:  Choosing ConnectPay frees you from the burden of managing complex paperwork and calculations associated with Section 125 plans.  We handle the heavy lifting, allowing you to focus on what matters most – running your business.

Cost-Effective Solutions:  We understand that cost is a major concern. ConnectPay offers competitive pricing on Section 125 plan documents, and our integrated approach can potentially save you time and money compared to working with separate providers for payroll and Section 125 administration.

Does ConnectPay offer Health Insurance Plans?

No, ConnectPay does not offer health insurance plans. Local insurance brokers are best suited to assist you with your businesses health plan needs. We offer the documentation to stay in compliance when offering pre tax benefits through payroll to your employees.

I Have a Cafeteria Plan. Is that a Section 125 Plan? Do I Still Need a Plan Document?

Yes, it is a Section 125 Plan--which means you also need that Section 125 Plan Document! Section 125 plans are sometimes called cafeteria plans. That's because they offer a wide range of pre tax benefits that your employees can pick and choose from depending on their needs--kind of like you would while picking out lunch at a cafeteria! 

Where can I learn more?
Additional FAQ's

Section 125 Resources

Want to learn more? Read through our blogs for a better understanding of Section 125 Plans. 

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Interested in a Connect Section 125 Plan Document? Fill out the form and our Client Success Team will be in touch with more info, and how to get started. 

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