Pre-Tax Plan
The State offers benefits to employees who are eligible through a cafeteria plan as authorized by Section 125 of the Internal Revenue Code. The pre-tax plan allows you to pay for your portion of most of your benefit plan contributions on a pre-tax basis, and save money on your taxes. If the state contribution covers your benefit plan elections entirely, you do not pay contributions out-of-pocket. You do not need to participate in the pre-tax plan, unless you have a flexible spending account. Benefit plan members enrolled in a flexible spending account must participate in the pre-tax plan.
Who is Eligible?
All employees enrolled in the State Employee Benefit Plan are eligible to participate in the pre-tax plan.
Eligible Benefits
Contributions for the member’s medical, dental, vision, accidental death & dismemberment (AD&D), employee term life up to $50,000, long term disability, and flexible spending elections may be paid pre-tax through the pre-tax plan. Additionally, contributions for the member’s dependent children and tax qualified spouse are also eligible for this plan.
Ineligible Benefits
Dependent life insurance coverage, supplemental spouse life insurance coverage, and long term care insurance coverage are defined by IRS code as taxable benefits and are excluded from the pre-tax plan. Contributions paid for a member’s non-qualified tax dependents do not qualify for the pre-tax plan.
Retiree & COBRA Members
Retirees and COBRA members may prepay payments for benefits through the remainder of the benefit year in which you terminate active employement. These payments may be taken on a pre-tax basis if you are currently enrolled in the pre-tax plan. However, if you are thinking about leaving State employment and either taking COBRA or retiring, consider your circumstances carefully before prepaying payments for benefits. If you have mid-year coverage changes that reduce the amount of your payments for benefits, no refund of prepaid payments for benefits is available.
If you are on COBRA and you or your spouse lose eligibility because you obtain other employment offering coverage or become eligible for Medicare, no refund of prepaid payments for benefits is available.
If you are a retiree and no longer need state insurance because of other coverage, no refund of prepaid payments for benefits is available.
Consult your tax advisor to determine the specific effect the pre-tax plan will have on your taxes.
Loss of Eligibility
If the employee divorces, their former spouse and any stepchildren will lose their eligibility. Dependent children will lose their eligibility if/when the dependent child turns 26 years old or joins the military. Dependents losing eligibility for coverage due to divorce, turning age 26, or joining the military will become ineligible at the end of the month in which the event occurred.
What's the Catch?
According to an interpretation of IRS rules, a potential drawback of the pre-tax plan is that no refund of overpaid benefit payments is available. This means you must notify the Health Care and Benefits Division right away if a dependent spouse or child loses eligibility for coverage. If you do not notify the Division of a loss of eligibility, and more benefit payments are taken out of your check than you owe, no refund of these payments for benefits is available. Also, remember that gross earnings for purposes of determining social security benefits are reduced by pre-tax deductions.
