SOURCE: Section 125 Cafeteria Plan Penalties for Employers
Quick Answer (as of 2026): The IRS does not charge one flat fine for a Section 125 cafeteria plan failure. The penalty is that the plan stops being a cafeteria plan, so every pre-tax deduction becomes taxable wages. The employer then owes back FICA and income tax withholding, plus IRS failure-to-deposit penalties of 2% to 15% and interest.
Continue reading Section 125 Cafeteria Plan Penalties: What Happens When a Plan Fails