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Library >> Rules and Regulations >> What is a Premium Spending Account (PSA)?
Proposed Regulations: Section 1.125-1
(m) Payment or reimbursement of employees’ individual accident and health insurance premiums--(1) In general. The payment or reimbursement of employees’substantiated individual health insurance premiums is excludible from employees’ gross income under section 106 and is a qualified benefit for purposes of section 125.
(2) Example. The following example illustrates the rule of this paragraph (m):
Example. Payment or reimbursement of premiums.(i) Employer P’s cafeteria plan offers the following benefits for employees who are covered by an individual health insurance policy. The employee substantiates the expenses for the premiums for the policy (as required in paragraph (b)(2) in §1.125-6) before any payments or reimbursements to the employee for premiums are made. The payments or reimbursements are made in the following ways:
(ii) The cafeteria plan reimburses each employee directly for the amount of the employee’s substantiated health insurance premium;
(iii) The cafeteria plan issues the employee a check payable to the health insurance company for the amount of the employee’s health insurance premium, which the employee is obligated to tender to the insurance company;
(iv) The cafeteria plan issues a check in the same manner as (iii), except that the check is payable jointly to the employee and the insurance company; or
(v) Under these circumstances, the individual health insurance policies are accident and health plans as defined in §1.106-1. This benefit is a qualified benefit under section 125.
What is a Premium Spending Account (PSA)?
A Premium Spending Account (PSA) is effectively a Section 125 Premium-only-Plan (POP) for Personal health insurance premiums, as allowed under new IRS regulations effective 1/1/09. Under Section 1.125-1(m), employers are able to reimburse employees for personal health insurance policy premiums tax-free. See Proposed Regulations for Cafeteria Plans.Proposed Regulations: Section 1.125-1
(m) Payment or reimbursement of employees’ individual accident and health insurance premiums--(1) In general. The payment or reimbursement of employees’substantiated individual health insurance premiums is excludible from employees’ gross income under section 106 and is a qualified benefit for purposes of section 125.
(2) Example. The following example illustrates the rule of this paragraph (m):
Example. Payment or reimbursement of premiums.(i) Employer P’s cafeteria plan offers the following benefits for employees who are covered by an individual health insurance policy. The employee substantiates the expenses for the premiums for the policy (as required in paragraph (b)(2) in §1.125-6) before any payments or reimbursements to the employee for premiums are made. The payments or reimbursements are made in the following ways:
(ii) The cafeteria plan reimburses each employee directly for the amount of the employee’s substantiated health insurance premium;
(iii) The cafeteria plan issues the employee a check payable to the health insurance company for the amount of the employee’s health insurance premium, which the employee is obligated to tender to the insurance company;
(iv) The cafeteria plan issues a check in the same manner as (iii), except that the check is payable jointly to the employee and the insurance company; or
(v) Under these circumstances, the individual health insurance policies are accident and health plans as defined in §1.106-1. This benefit is a qualified benefit under section 125.
This document has been prepared solely for the purpose of providing information based on legal and tax advice provided to Zane Benefits, Inc. However, it is not meant to provide legal or tax advice for entities other than Zane Benefits. No representation is made as to the completeness or accuracy of the information herein. As such, it should not be used as a substitute for consultation with professional employment law specialists, tax accountants, attorneys, or other advisors. To comply with U.S. Treasury Regulations, we inform you that, unless expressly stated otherwise, any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.