The trade for pre-tax treatment under Section 125 is irrevocability: once an employee elects, the election is locked for the plan year. The regulations then carve out a specific list of events that permit a change. Everything else, including “I changed my mind” and “money is tight this month”, is not allowed, and a plan that lets those changes through risks its tax status for everyone.

This post lists the permitted events, the ones employers wrongly approve, the consistency rule that trips up most requests, and the window in which the employee has to act.

The events that permit a mid-year change

The core list comes from Treasury Regulation 1.125-4. An employee may change an election mid-year when one of these happens:

• Change in legal marital status: marriage, divorce, legal separation, annulment, death of a spouse.
• Change in number of dependents: birth, adoption, placement for adoption, death of a dependent.
• Change in employment status of the employee, spouse or dependent that affects eligibility: starting or ending a job, a strike or lockout, starting or returning from unpaid leave, a change between full-time and part-time, a change in worksite.
• A dependent gains or loses eligibility under the plan, for example a child reaching the plan’s age limit.
• Change in residence that affects eligibility, such as moving out of a plan’s service area.
• Cost or coverage changes: a significant increase or decrease in cost, a significant curtailment of coverage, the addition or improvement of a benefit option, or a change in coverage under a spouse’s or dependent’s employer plan.
• HIPAA special enrollment rights, including loss of other coverage.
• Judgment, decree or court order requiring coverage of a child.
• Entitlement to Medicare or Medicaid, or loss of that entitlement.
• FMLA leave, with the right to revoke and later reinstate.
• COBRA qualifying events for the employee’s spouse or dependents.

Two additions from IRS Notice 2014-55 that plans must adopt in writing to use: a reduction in hours to below 30 per week even if coverage continues, and enrollment in a Marketplace plan during a special or open enrollment period.

What does not count

Employers approve these out of kindness, and each one is a problem:

• Financial hardship, or a change in the employee’s budget.
• A doctor or pharmacy leaving the network, unless the plan treats it as a curtailment of coverage.
• An employee who forgot to enroll or chose the wrong amount at open enrollment.
• A spouse’s open enrollment that did not actually change the spouse’s coverage.
• Wanting to reduce a health FSA election because expenses turned out lower than expected.

Health FSA elections are also narrower than the general list: cost and coverage changes do not permit a health FSA change at all.

The consistency rule

Having a qualifying event is not enough. The change the employee requests has to be consistent with the event. The birth of a child allows adding the child and increasing a health FSA election; it does not allow dropping dental coverage. A spouse losing a job allows adding the spouse to the employee’s plan; it does not allow the employee to drop their own coverage. Administrators reject more requests on consistency than on the event itself.

The deadline

The regulations leave the window to the plan document, and almost every plan uses 30 days from the event (60 days for the Medicaid and CHIP special enrollment events under HIPAA). An employee who reports a birth on day 45 has missed it and waits for the next open enrollment. The change takes effect prospectively, on the first payroll after the request is approved, with one exception: for birth, adoption or placement for adoption, HIPAA requires coverage to be retroactive to the date of the event.

What the employer has to keep

For each approved change, keep the request form, the date of the event, the date the employee notified you, and the supporting document (marriage certificate, birth certificate, the spouse’s employer’s letter). Nondiscrimination testing and any IRS or DOL inquiry start with this file.

How this works with an Elevate Benefits program

Elevate’s program runs inside the same Section 125 framework, so the same events and the same 30-day window apply to its elections. The administrator processes change requests against the list above, which keeps the plan clean for every participant. Elevate’s published figures put the employer’s payroll tax savings at $600 to $700 per qualified W-2 employee per year; keeping elections compliant is what protects that number through an audit.

Frequently asked questions

Can an employee cancel their election because they cannot afford it anymore? No. Financial hardship is not a permitted event. The election stays in place until the plan year ends or a permitted event occurs.

Does a spouse’s open enrollment at another employer count? Only if it results in an actual change to the spouse’s coverage, and the plan years differ. The employee’s change must then be consistent with what the spouse did.

What if we let a change through that was not permitted? The plan has operated outside its terms. The usual correction is to reverse the change and, if the employee received a tax benefit they were not entitled to, treat the amount as taxable. A pattern of improper changes puts the plan’s status at risk.

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Running a plan and unsure whether your administrator checks events against this list? Talk to Elevate Benefits.

General information about federal rules as of 2025, not tax or legal advice. Plan documents vary; check yours.