Knowledge of qualifying events is paramount for an employer that wants to extend flexible, tax-advantaged benefits through a Section 125 Cafeteria Plan. The IRS has set forth very explicit guidelines for situations during which employees can make mid-year changes to their elections under a cafeteria plan. These are the so-called Section 125 qualifying events, and correctly handling them ensures compliance and maximum utilization of the plan.
Health Sphere helps companies using Core360, a completely managed and compliant benefit solution using Section 125 together with a Self-Insured Medical Reimbursement Plan (SIMRP) and a Preventative Care Management Plan (PCMP). Among the most affordable, compliant, and employee-friendly choices now available, it ranks high. Still, particularly regarding qualifying events, even the most sophisticated program must run inside the IRS system.
This article will clarify what an IRS Section 125 Cafeteria Plan qualifying event is, the kinds of events that qualify, and how Core360 improves employee well-being and take-home pay while streamlining compliance.
What Is a Section 125 Cafeteria Plan?
A tax-advantaged benefit plan called a Section 125 Cafeteria Plan lets employees use pre-tax money to pay for some qualified expenses, including medical treatment, dependent care, and health insurance premiums. This system decreases taxable income, therefore lowering payroll taxes for the employee as well as the company.
The IRS usually prohibits employees from altering their benefit elections mid-year, though, as these elections are made pre-tax, unless a qualifying event happens.
Knowing the qualifying events of the Cafeteria 125 plan helps one to know exactly when to change their benefits.
What Is a Qualifying Event Under IRS Guidelines?
During the plan year, the IRS specifies certain “change in status” occurrences that let workers change their cafeteria plan choices. These are referred to as qualifying events under Section 125.
Here are the most commonly accepted qualifying events:
1. Change in Marital Status
- Marriage
- Divorce
- Legal separation
- Annulment
- Death of a spouse
2. Change in Number of Dependents
- Birth or adoption of a child
- Placement for adoption
- Death of a dependent
3. Change in Employment Status
- Starting or ending a job
- Change in work schedule (e.g., full-time to part-time)
- Leave of absence
- Strike or lockout
4. Change in Dependent Eligibility
- A child reaches the age limit and is no longer eligible
- A dependent becomes eligible due to a disability
5. Change in Residence
- Moving to a location where the current benefit coverage is no longer available
6. Significant Cost or Coverage Changes
- Substantial increase in insurance premiums
- Major coverage changes from the provider
- Employer adding or dropping a plan option
7. Court Orders
- For example, a court order requiring an employee to provide coverage for a child
8. Medicare/Medicaid Entitlement
- Gaining or losing eligibility for Medicare or Medicaid
All of these fall under IRS Section 125 Cafeteria Plan qualifying events, allowing employees to adjust their benefits to reflect life changes—but only if the employer’s plan allows it and the change is consistent with the event.
The Compliance Challenge
For HR teams and employers, keeping up with these rules can be a burden. Mistakes in administering mid-year changes can lead to serious tax consequences for both the employer and the employee.
That’s why Health Sphere created the Core360 plan—to provide a fully managed, compliant benefit structure that automates and simplifies administration, including how qualifying events are handled.
Core360 doesn’t just follow IRS rules—it optimizes them.
How Core360 Helps Employers Stay Compliant
Health Sphere’s Core360 program is designed to deliver IRS-compliant benefits with none of the usual complexity. Here’s how it supports qualifying events:
- Automated Eligibility Checks: Core360 includes built-in processes to verify and validate any qualifying event before adjustments are allowed.
- Documentation Management: The platform ensures all necessary paperwork and documentation are collected and stored, reducing legal risk.
- Real-Time Support: Our team of compliance experts handles the details, so employers don’t have to worry about missing any IRS requirements.
Because Core360 leverages Section 125 alongside a Self-Insured Medical Reimbursement Plan (SIMRP) and Preventative Care Management Plan (PCMP), employers get the added benefit of significant payroll tax savings—around $600 per W2 employee per year—while employees receive enhanced health benefits with no change in take-home pay or out-of-pocket costs.
It’s a win-win solution that combines tax efficiency, compliance, and real support.
Employee Benefits That Go Beyond the Basics
Unlike traditional Section 125 cafeteria plans, Core360 is structured to offer real value to employees, without trade-offs. Here’s what employees receive:
- 3–4% net paycheck increase (about $100/month)
- $0 copay for 24/7 Telehealth, wellness coaching, and mental health services
- Access to Mayo Clinic health tools and a personal health dashboard
- Tax-free coverage for life insurance, disability, and critical illness
- Benefits extended to spouses and dependents
And best of all, more than 40,000 employees are already enrolled, with Health Sphere aiming to reach over 250,000 lives in the next phase of its mission.
Why This Matters Now
As businesses continue to seek cost-effective ways to retain talent, managing benefit compliance is more important than ever. Offering flexible, tax-advantaged benefits helps employers:
- Improve workforce satisfaction
- Stay competitive in hiring
- Lower healthcare claims
- Avoid compliance errors
Core360 offers companies all these benefits in one, completely managed plan that is compliant, flexible, and free to use.
Frequently Asked Questions (FAQ)
1. How quickly must employees notify HR of a qualifying event under a Section 125 plan?
Usually, within 30 days of the qualifying event, employees must inform their employer and ask for a modification of their benefit elections. Missing this window could prevent changes until the following open enrollment time.
2. Can employers allow benefit changes outside of the IRS-approved qualifying events?
No. Employers must follow IRS guidelines strictly. Changes may only be made in reaction to particular qualifying events; noncompliance could cause the plan to lose its tax-advantaged status, which would result penalties or audits.
3. Are there different rules for mid-year changes if the employee is also enrolled in an HSA?
Yes. Employees adding to a Health Savings Account (HSA) have to fulfill extra IRS requirements, particularly if they alter their mid-year HDHP coverage. Any election changes must be verified by employers to still meet HSA qualifying criteria.
4. How does Core360 help companies stay compliant with the qualifying event rules?
Health Sphere’s Core360 plan uses a fully managed, automated system that monitors and applies IRS regulations in real time. This reduces the risk of errors, ensures that all qualifying events are properly documented, and takes the administrative burden off your internal HR team.
Final Thoughts: Compliance Without Complexity
Running a compliant benefits program requires knowledge of the IRS Section 125 Cafeteria Plan qualifying event rules, but doing it manually is labor-intensive and dangerous.
Core360 makes it easy. With automated compliance checks, pre-vetted employee communications, and expert support, Health Sphere helps companies deliver a modern, benefit-rich program that reduces tax waste and improves lives, with no disruption and no added cost.
Core360 offers a completely managed, compliant solution that safeguards your company and supports your people, whether you are negotiating IRS rules or attempting to simplify your handling of cafeteria 125 plan qualifying events.
Book your 10-minute consultation
Discover how Core360 can help your company streamline compliance, reduce payroll taxes, and provide improved benefits—at no expense to you or your staff members.
