NJBIA Issue Network - Tax Policy

October 25, 2006

I Need Your Comments - RE: Proposed Section 125 Employer Mandate

To: The Tax Policy Network
Reply to Art Maurice, NJBIA First Vice President

Recently legislation was introduced (A-3452 Cohen) that would mandate that all private employers with 11 or more employees who, provide health insurance, to offer employees Section 125 Cafeteria Plans. 

I am interested in your reaction to this proposal. In particular, I’m interested in any adverse tax consequences that might result from this proposal. Your viewpoint will be very helpful as NJBIA develops its position on this legislation.  Here are some more specifics about the bill:

  • A3452 requires private sector employers with 11 or more employees that offer health insurance to their employees to also offer them a benefits plan that allows the employees to pay their share of healthcare coverage premiums from pre-tax income instead of taxed income.
  • “Cafeteria plans,” authorized under section 125 of the Federal Internal Revenue Code of 1986, permit an employer to offer employees individual choices between certain nontaxable employer-provided benefits and salary or wages.  If the employee chooses to reduce salary and receive a tax-exempt benefit, there is no federal income tax or F.I.C.A. wage tax on the amount of the exempt benefit.
  • The sponsor’s goal is to provide the employees with a cafeteria plan that will allow the employees to pay their share of premiums for health insurance through cafeteria plan salary reduction.  This would allow the employees, pre-tax income, to pay their share of health insurance premiums.
  • This bill also provides a New Jersey gross income tax exclusion for those premium conversions, eliminating the gross income tax on the employees’ share of health coverage premiums and further increasing the affordability of their healthcare coverage.

NJBIA - Serving More than 23,000 Member Companies

The following e-mail has been sent to you because you opted to join an NJBIA issue network or because you are a member of an NJBIA policy committee.  It contains information we believe you will find useful.  If you have questions about your NJBIA membership, contact Lynn Sabo at 609-393-7707, ext. 238, or via e-mail at lsabo@njbia.org.   New Jersey Business & Industry Association (NJBIA), 102 West State Street , Trenton , NJ , 08608 . www.njbia.org.