Section 125 plans
The term “Section 125 Plan” refers to section 125 of the United States Internal Revenue Code. This section of the tax code establishes rules for employers that offer employees a choice between taxable and nontaxable benefits (including, but not limited to, health insurance coverage).
Individuals who buy health insurance coverage through a Section 125 plan benefit from the ability to pay for coverage with pre-tax earnings, which saves them a significant amount of money compared to paying for health insurance with after-tax dollars. Employers also save money on payroll taxes (Medicare, Social Security, and unemployment insurance taxes) when employees have money withheld from their paychecks to pay for health coverage through a Section 125 plan.
Beginning July 1, 2009, Minnesota law requires employers that have 11 or more full-time equivalent employees and do not offer health insurance benefits to their employees to establish and maintain a cafeteria or premium-only Section 125 Plan to allow their employees to purchase individual market or employer-based health coverage with pretax dollars. Employers may opt out of this requirement by certifying to the Commissioner of Commerce that they have received education and information on the advantages of Section 125 Plans. Minnesota Department of Commerce