Section 125 Cafeteria Plans

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.

Section 125 cafeteria plans. Reduced payroll taxes for employees who participate in the 125 cafeteria plan. A plan that offers a nonqualified benefit is not a 125 cafeteria plan. As a result the employer s fica futa suta and workers compensation costs are also lower.

Once a plan is created the benefits are available to employees their spouses and dependents. Section 125 plans let employees use pre tax dollars for these benefits which include health and life insurance. The benefits allowed and not allowed in a cafeteria plan are taken from the list of fringe benefits found in irs publication 15 b.

A general transitional rule any cafeteria plan in existence on february 10 1984 which failed as of such date and continued to fail thereafter to satisfy the rules relating to section 125 under proposed treasury regulations and any benefit offered under such a cafeteria plan which failed as of such date and continued to fail thereafter to satisfy the rules of section 105 106 120. It provides participants an opportunity to receive certain benefits on a pretax basis. 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.

Not all benefits are included under a section 125 cafeteria plan. Depending on the circumstances and. A section 125 cafeteria plan lets a business owner offer affordable employee benefits while giving themselves a payroll tax break.

You must follow the section 125 guidelines when adding benefits to your cafeteria plan. 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. 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.

Section 125 cafeteria plans must be created by an employer. A cafeteria plan allows employees to pay certain qualified expenses such as health insurance premiums on a pre tax basis thereby. Section 125 cafeteria plan.