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Section 125 Plans-Are You Covered? September 23, 2009

Posted by Admin in Health Insurance, Money.
Tags: , ,

As I consider my annual health expenses, what tools are available to manage them? My employer has the basic Section 125 plan, which allows us to deduct our medical and dental plans from our salaries on a pre-tax basis. Parking and transit expenses are covered too. That is handy especially as I am required to pay for parking. In other words, the funds I spend for those expenses are not taxed as wages. These plans are also commonly used for child care expenses and reimbursement.

In addition, your company can set up a Flexible Spending Account-I believe it’s part of the section 125. If I had this part, then the out-of pocket expenses I have incurred could have been paid  from a pre-tax account. A couple of things-I have to be wiling to set aside the funds throughout the year to cover planned medical and dental expenses, plus I need to make a plan ahead of time as to what expenses I will incur. For me, I would include my deductibles,  enough co-pays to cover my “regular” appointments and maybe an extra $200 to cover $20 of $1000 in “procedures” throughout the year. That would be $680 or $56 per month or $28 per pay period deducted from my pay. Not too bad. When I get reimbursed from my own money-it is for the full amount.

  • Pros: less taxable income and payments deducted throughout the year
  • Cons: reimbursement paperwork can be a hassle and if you don’t use the funds, they are lost for that year. Keeping up with paperwork is essential if you really need the cash flow.
  • Does it cost a lot for the employer to add this to an existing plan?
  • If it was on an iPhone-there’s probably an app for that.

I wish that my employer would add this one on-it would save everyone a little tax money and might increase that warm, fuzzy feeling……or not.



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