Expert: Shirley McAllister, CPP, PHR - 1/2/2009

Question
I am switching payroll service from Paychex to doing it myself in QB. Our company offers dental insurance to our employees but I don't know if I should set up their deduction as pre-tax or after-tax. In QB it talks about Section 125 plans. Are all dental insurance plans Section 125? We asked our insurance provider and he "didn't know" if ours was.

Answer
Section 125 is the law that covers Cafeteria Plans. The company needs to set up a cafeteria plan before benefits can be pretaxed. It applies to each company not to the insurance company.

You would have to find out from your company how it was set up in the beginning as to whether or not they set it up as a cafeteria plan. The plan has to have written documentation and be approved by the IRS as a qualified plan.

Paychex may know, I have not dealt with them, but I know that if you use ADP and have a cafeteria plan you have to send the plan description to ADP in order to have the benefits pretaxed, it may be that Paychex has a copy of the plan documents.

Shirley