jasdlm Posted October 8, 2022 Report Share Posted October 8, 2022 Does anyone have experience with organizations that are offering pre-tax HI but don't have a Section 125 plan? Company has been offering pre-tax HI (which the company pays 90% of premium for employee and 70% of premium for spouse/dependent/family) but just found out the 125 plan they have had for 20 years (provided by a TPA) only covers their FSA. I've read the plan and don't find any way to argue that it covers the HI Premium. Should I just recommend a Premium Only 125 for the HI? Is their best bet to fix it going forward and hope no one ever asks? I have spent 3 or 4 hours searching/reading and cannot find any on-point guidance. Thanks! Quote Link to comment Share on other sites More sharing options...
Lion EA Posted October 8, 2022 Report Share Posted October 8, 2022 Do the employees use their Flexible Spending Accounts to pay their Health Insurance Premiums? What's a TPA? Quote Link to comment Share on other sites More sharing options...
jasdlm Posted October 8, 2022 Author Report Share Posted October 8, 2022 Sorry. Third Party Administrator. They do not use their FSA accounts to pay their Health Insurance Premiums. The company treats the HI like there was a premium only 125 plan and files the W2s according. I wish I could spell amnesty :(. I just noticed my typo. Quote Link to comment Share on other sites More sharing options...
Lee B Posted October 8, 2022 Report Share Posted October 8, 2022 I assume that you are asking about the 10% paid by the employee and the 30% that the employee pays for their dependents, because the premiums paid by the employer is a tax free fringe benefit whether or not the employer has a section 125 plan. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted October 8, 2022 Author Report Share Posted October 8, 2022 They have been treating the employee side of the premiums as tax free (Fed/state/SS/Medicare). Quote Link to comment Share on other sites More sharing options...
jasdlm Posted October 8, 2022 Author Report Share Posted October 8, 2022 29 minutes ago, cbslee said: I assume that you are asking about the 10% paid by the employee and the 30% that the employee pays for their dependents, because the premiums paid by the employer is a tax free fringe benefit whether or not the employer has a section 125 plan. Yes...that's what I'm asking about. Thank you! Quote Link to comment Share on other sites More sharing options...
Lee B Posted October 8, 2022 Report Share Posted October 8, 2022 2 hours ago, Lion EA said: Do the employees use their Flexible Spending Accounts to pay their Health Insurance Premiums? What's a TPA? FSAs cannot be used for the employee portion of the premiums 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted October 8, 2022 Report Share Posted October 8, 2022 This employer owes a lot of payroll taxes and corrected W 2s 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted October 8, 2022 Report Share Posted October 8, 2022 Who has been handling payroll recordkeeping and reporting? Quote Link to comment Share on other sites More sharing options...
Lion EA Posted October 9, 2022 Report Share Posted October 9, 2022 cbslee makes some good points. I'm learning on this thread. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted October 9, 2022 Author Report Share Posted October 9, 2022 Right. They employer has been erroneously exempting the employee deferral from tax. My questions is whether anyone knows if the IRS offers any type of amnesty or fix other than going back and amending/paying all of the back taxes, penalty, and interest. It would be an incredible mess with employees having to amend prior year returns,etc. I think this goes back at least 15 years. Quote Link to comment Share on other sites More sharing options...
Lee B Posted October 9, 2022 Report Share Posted October 9, 2022 14 hours ago, jasdlm said: Right. They employer has been erroneously exempting the employee deferral from tax. My questions is whether anyone knows if the IRS offers any type of amnesty or fix other than going back and amending/paying all of the back taxes, penalty, and interest. It would be an incredible mess with employees having to amend prior year returns,etc. I think this goes back at least 15 years. You have some serious issues here plus a number of unexplained details. Most of the members that post on this on this board don't handle situations like your client is in, so looking somewhere else for advice may be a good idea. 1 Quote Link to comment Share on other sites More sharing options...
jasdlm Posted October 9, 2022 Author Report Share Posted October 9, 2022 23 hours ago, cbslee said: Who has been handling payroll recordkeeping and reporting? An in-house bookkeeper. Quote Link to comment Share on other sites More sharing options...
GLGACCT Posted October 9, 2022 Report Share Posted October 9, 2022 Unfortunately, no answer to your question. But have you talked to the TPA who set up the FSA plan, as he may be able to offer more guidance on the matter. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted October 10, 2022 Report Share Posted October 10, 2022 If I understand the question correctly, the FSA is irrelevant. The employer has been deducting an amount from the employee's wages for the partial cost of the health insurance. There is no written plan for the health insurance deduction, and yet they have been treating this as a deferral of income not subject to FICA, FWT, Medicare, etc. A section 125 plan should be in place for this to be tax deferred. Are the employees actually signing an election for the amount withdrawn for health insurance? That is a written document, although I don't believe it is what is typically meant by a plan document. I am wondering if the election the employees' have signed can be formalized as a plan document and if a determination letter could be requested from the IRS that would clarify this and perhaps eliminate the need to change 15 years worth of W2s and other employment tax documents. If the only benefit under this 125 plan is health insurance, no 5500 is required if I remember correctly. i do agree that this forum might not be the best place to seek a definitive answer. And perhaps I have misunderstood some nuance of the question. 2 Quote Link to comment Share on other sites More sharing options...
jasdlm Posted October 10, 2022 Author Report Share Posted October 10, 2022 Hi, Gail. You understand perfectly, and I truly appreciate your response. I apologize. I'm not trying to ask a question inappropriate to the forum. It seemed like a tax issue to me, but perhaps it's more of an HR issue? I like your idea, and there are written elections for the health insurance. I just couldn't find anything regarding whether there was any type of 'beg for forgiveness' or 'amnesty' type approach to right previous years. I'm grateful to all who responded! 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted October 10, 2022 Report Share Posted October 10, 2022 jasdim, it is a tax issue, but it's the kind of issue that very few of the members on this forum have dealt with. I suspect that most of us who have been practicing for a number of years have had issues pop up with business clients where the client has mishandled some significant tax issue for many years. All we can do is make sure our client understands what are the rules and regulations and what impact and potential penalties apply and what needs to be done to bring our client back into compliance. Example, what if you picked up a new white table cloth restaurant and you fairly quickly noticed that your new client hadn't been reporting tips? Very few clients will agree to amend the payroll reports and employee W 2s for multiple years. If your client agrees to fix the problem going forward, is that good enough? After all we can only advise our clients what needs to done to be in compliance, what reports need to be amended etc. We can prepare amended returns, but our client decides whether or not they will sign and file these amended returns. 3 Quote Link to comment Share on other sites More sharing options...
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