Internal Revenue Code allows for benefits to be paid to plan participants without such benefits becoming taxable income to participants. Section 105 allows employers to exclude income, for amounts paid for accident and health insurance benefits. There is also a section that describes non-discrimination testing that employers must comply with. This will ensure that highly compensated employees will not benefit more favorably in comparison to a company’s general population.
Section 125 will allow premiums for welfare benefits to be deducted on a pre-tax basis. Section 132 will also allow commuter benefits to be paid on a pre-tax basis. There are multiple code sections that similarly impact benefits. Benefit plans and SPD’s must take tax implications into consideration, alongside complying with ERISA regulations.