Section 125 Cafeteria Plan

A cafeteria plan is a type of employee benefit plan offered in the united states pursuant to section 125 of the internal revenue code. In a section 125 plan or cafeteria plan employees can pay qualified medical dental or dependent care expenses on a pretax basis which has the effect of reducing their taxable income as well as their employer s social security fica liability federal income and unemployment taxes and state unemployment taxes where applicable. A plan that offers a nonqualified benefit is not a 125 cafeteria plan.

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Section 125 is officially an irs pretax vehicle nicknamed cafeteria plan because employees can choose pretax benefits like medical or dental insurance or opt to receive the equivalent amount on their paycheck paying taxes on.

Section 125 cafeteria plan. A section 125 cafeteria plan lets a business owner offer affordable employee benefits while giving themselves a payroll tax break. A cafeteria plan see section 125 of the irs code is a benefit provided by an employer which allows an employee to contribute a certain amount of his or her gross income to a designated account before taxes are calculated. A cafeteria plan also known as a section 125 plan after the portion of the irs code that regulates the plans lets employees redirect part of their salaries and wages to pay for certain benefits. Accordingly a cafeteria plan that fails to comply with 125 i for plan years beginning after december 31 2012 is not a 125 cafeteria plan and the.

A section 125 plan is part of the irs code that enables and allows employees to take taxable benefits such as a cash salary and convert them into nontaxable benefits. Due to the complexity of these plans and their compliance issues contact a benefits administration professional who specializes in creating and administering these types of plans. Section 125 plans let employees use pre tax dollars for these benefits which include health and life insurance. A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the internal revenue code.

A section 125 cafeteria plan offers a cost effective benefits plan for companies. It provides participants an opportunity to receive certain benefits on a pretax basis. A cafeteria plan allows employees to pay certain qualified expenses such as health insurance premiums on a pre tax basis thereby reducing their total taxable income and increasing their spendable take home income. A 125 cafeteria plan may offer only qualified benefits.

Its name comes from the earliest such plans that allowed employees to choose between different types of benefits similar to the ability of a customer to choose among available items in a cafeteria qualified cafeteria plans are excluded from gross income. It can help businesses save money while keeping employees happy. A cafeteria plan includes premium only plans and flexible spending accounts is an employee benefits program designed to take advantage of section 125 of the internal revenue code.