Federal IRS Irrevocability Rule
Pursuant to Section 125 of the Internal Revenue Code, premiums paid by the
employee for health, dental, and life insurance coverage are tax-exempt. The
tax exemption applies only to premiums that are payroll deducted. For plans
that provide the tax-exempt premium, the Internal Revenue Code prohibits changes
in the employee's deduction during the plan year unless there is a qualifying
change in status (qualifying event). If the State
of Illinois is not in compliance, the plan could lose its qualification and/or
employees could be subject to an IRS audit and be required to pay additional
taxes and possible penalties.
The Irrevocability Rule applies to both increases and decreases in coverage, such as adding or dropping dependents from the health coverage or increasing or decreasing employee life insurance coverage.