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TAX
NEWS
New Minnesota law will
require employers to have Section 125 Plans
A law that went into
effect July 1, 2009 requires Minnesota employers with 11 or
more current full-time equivalent employees in the state to
establish and maintain a Section 125 Plan. An employer can
opt out of the requirement if it completes and submits a
Department of Commerce form certifying that it has
received education and information on the advantages of
Section 125 Plans, and checks a box stating that it is
opting out of the requirement.
What is a Section 125 Plan?
Section 125 refers to a section of the federal internal
revenue code. It allows companies to give their
employees the opportunity to pay for certain types of
benefits on a pretax basis. Pretax benefits lower
payroll-related taxes for both the employer and
employees.
Section 125 Plans are also called Cafeteria Plans because
they can (but are not required to) give employees a choice
between different types of benefits. For example, an
employee with young children might choose to allocate a
certain amount of dollars to pay for daycare, while someone
without young children might choose a different benefit.
The benefits that may be funded through a Section 125 plan
are:
- Accident and
health benefits (but not Archer medical savings accounts
(Archer MSAs) or long-term care insurance);
- Adoption
assistance;
- Dependent care
assistance;
- Group-term life
insurance coverage (including costs that cannot be
excluded from wages); and
- Health savings
accounts (HSAs). Distributions from an HSA may be used
to pay eligible long-term care insurance premiums or
qualified long-term care services.
Self-employed
individuals, partners, and shareholder employees of a
Subchapter S corporation
who directly or indirectly own more than two percent of the
company's stock are ineligible to participate.
You can read more about these plans in IRS
Publication 15-B.
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