Topic 4 Part B

Question 1

What is a Section 125 Plan

Answer 1

A section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable. A plan offering only a choice between taxable benefits is not a section 125 plan.

Question 2

Cafeteria Plan

Answer 2

An employee benefit plan that allows staff to choose from a variety of benefits to formulate a plan that best suits their needs. Cafeteria plan options may include health and accident insurance, cash benefits, tax advantages and/or retirement plan contributions.

• Non Taxable: Healthcare, 401 K, GTL, Group Disability
• Taxible: Cash, GTL>50,000, Group Auto Insurance

Question 3

Doctrine of Constructed Receipt

Answer 3

• An EE would be taxed as if they selected a maximum taxable benefit possible, regardless of actual choice

Question 4

Doctrine of Constructed Receipt: Section 125

Answer 4

• Section 125 blocks constructed receipt

- taxed only if you chose normally taxed benefits

Question 5

Flexible Spending Account Types

Answer 5

1. Medical

2. Dependent Care

Question 6

Flexible Spending Account (FSA)

Answer 6

• EE takes pretax salary deduction to fund accounts

- Used to reimburse eligible expenses for the EE as defined by the IRC

Question 7

Dependent Care

Answer 7

1. Childcare Expenses

2. Elderly Care Expenses

Question 8

Medical Care

Answer 8

Any medical expense which a health plan does not fully cover or pay for at all

Question 9

Items Not Fully Covered

Answer 9

• Co Pays
• Deductibles
• Coinsurance

Question 10

Items Not Covered At All

Answer 10

• Vision Expenses; No vision insurance

Question 11

Uniform Coverage Rule

Answer 11

EE agrees to place $1200 a year into a medical FSA and $1200 a year into a dependent FSA
- Fund $200 a month; $100 for each

Question 12

ER FSA Advantage

Answer 12

Reduces payroll taxes

Question 13

Why Is An FSA An Example of a Sec 125 Plan

Answer 13

• Either take taxable salary or place non taxed in an FSA

Question 14

Premium Plan Only (Premium Conversion Plans)

Answer 14

• Medical Plan offered on a contributory basis

- Premium contribution can be taken out on a pre tax basis through a salary reduction plan

Question 15

Why is Premium Plan Only an Example of a Sec 125 Plan?

Answer 15

• Either pay through Payroll Deduction (Taxable) or through Premium Only Plan (Non Taxable)