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Advisory Opinion: Section 125

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Agency Name: Department of Employment Security
Contact Person: Lois S. Feinberg
Address 1: 33 S. State St., Rm. 936
Address 2:
City: Chicago
State: Illinois
Zip: 60603
Phone: 312-793-4510
Email: lois.feinberg@illinois.gov
Fax: 312-793-5645
Subject: Unemployment insurance treatment of dental, vision and medical flexible spending arrangements under Section 125 of the Internal Revenue Code
Heading of the Part/Public Act:
Admin Code Citation/Public Act Number:
Section Numbers:
Illinois Register Citation (Page Number and Publication Date):
Type of Rule: (New/Emergency/Amended)
Type of Impact (Reporting/Cost or Fee/Education Credit/Other - specify): Liability for unemployment insurance contributions
Business or Industry Type Affected: Any business that offers Section 125 Plan benefits
Effective Date:
Plain Language Explanation: Employer payments pursuant to dental, vision and medical flexible spending arrangements under Section 125 of the Internal Revenue Code are not subject to unemployment insurance contributions, provided that they are not subject to the federal unemployment (FUTA) tax.
Public Hearing Location (if applicable):
Advisory Opinion (if applicable): Inquiry has been made as to the treatment for purposes of Illinois unemployment insurance contributions of dental and vision premiums and medical flexible spending arrangements under Section 125 of the federal Internal Revenue Code. 56 Ill. Adm. Code 2730.150 states that payments which are not taxable for federal income tax purposes as part of a cafeteria plan established under Section 125 are not "wages" subject to the payment of contributions, to the extent that (1) the benefit chosen under the plan is specifically excluded under Section 235 of the Illinois Unemployment Insurance Act and (2) under Section 245 (C) of the Act, the benefit does not constitute "wages" by virtue of its being subject to the payment of taxes under the Federal Unemployment Tax Act (FUTA). Payments for medical expenses have been found to not constitute "wages.". The Department has interpreted "medical expenses" broadly, to basically includepayments in the nature of health expenses, so that dental, vision and medical flexible spending arrangements, provided that they are also exempt from FUTA, have been considered to be exempt.

Members of the public may submit comments to the agency contact listed above. Comments should be submitted within 45 days of publication in the Illinois Register.