State Tax Deduction for Cafeteria Plans Moves Forward

The Senate Health Committee heard testimony on several health care reform bills put forward by the Republican Caucus. All but one was defeated. The survivor, Senate BillX1-23 would offer businesses a tax credit equal to 15 percent of their costs for administering qualified cafeteria plans (often referred to as “Section 125 plans” in reference to the IRS Code concerning these arrangements). The credit would be available for eligible expenses incurred in 2007 through 2011. So the credit would need to be renewed by the legislature if it is to extend beyond 2011.

SBX1-23 still has a long road to travel before it becomes law. The measure, authored by Senator Roy Ashurn of Bakersfield, was referred by the Senate Health Committee to the Senate Revenue and Taxation Committee.

Section 125 plans allow employees to spend pre-tax dollars on their health insurance premiums, making it easier for them to pay their share of the cost of their coverage. Employers benefit because they avoid paying payroll taxes on these pre-tax dollars, making it easier for them to offer workers medical coverage.

The hoped for result: more companies offering coverage and more employees taking them up on the offer. By providing employers a tax credit for part of cost of administering their Section 125 plans, the author hopes more companies will implement the program.

SBX1-23 is hardly earthshaking, but it’s a worthwhile bill. What’s most significant about the bill, however, is that it is the only Republican health care reform-related proposal still alive in the Democratic-controlled legislature. Whether it can make it through both chambers to the Governor’s desk, remains to be seen.