Using Section 125 PremiumOnly Plans to Expand Health Coverage

IRS Section 125 employee benefit plans lower taxable income and tax liability by letting employees pay their share of employer health insurance premiums on a pre-tax basis. This issue brief explores how states are using these plans to increase access to health coverage. Workers whose employers offer them health coverage but pay their premiums after taxes could benefit from policies expanding use of Section 125, which makes offered coverage more affordable. Despite advantages for workers, many small employers do not offer these plans because employers are not familiar with them or with the tax treatment of employer-sponsored health benefits more generally.