Section 125 Deduction

Pop a premium only plan pop is a great way to save on insurance premiums with pre tax dollars contributing to the overall cost. 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. In the context of section 125 pre tax means that a deduction is exempt from federal income tax withholding social security and medicare taxes.

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Section 125 plans should be created so they don t discriminate in favor of highly compensated workers or key employees.

Section 125 deduction. As a result the employer s fica futa suta and workers compensation costs are also lower. Together with pops and fsas as well as non section 125 plans such as an adoption assistance plan cafeteria plans allow pre tax deductions which may help employees pay less in taxes. Section 125 plans section 125 plans from paychex can save money for your company and employees.

If a plan fails certain non discrimination tests any highly paid worker or key employee who participates in the plan will lose the tax deduction they otherwise would have received. The total dependent care benefits the employer paid to the employee or incurred on the employee s behalf including amounts from a section 125 plan should be reported in box 10 of form w 2. Section 125 cafeteria plans also provide several important advantages to employers especially those who own a small business.

I m thinking that the difference is employers with over 250 employees use 805154 and those with less use 805158 and that ee means employee and not the box 12 ee code. The employer also saves because a section 125 deduction also. Any amount over 5 000 should be included in boxes 1 3 and 5 as wages social security wages and medicare wages.

If your employer provides section 125 plan benefits you receive a tax break on your contributions. Employees receive benefits as pre tax deductions. We re trying to figure out what the the tax rules for the section 125 deduction codes mean 805154 section 125 code dd ee deduction 805158 section 125 ee deduction.

Employees their spouses and dependents can all benefit from section 125 plans. A section 125 premium only plan pop and flexible spending account fsa also known as cafeteria plans can reduce fica federal and state and local taxes for your company and employees when combined with your company s group health insurance. Section 125 is a written plan that lets employees choose between qualifying benefits and cash.

A section 125 or cafeteria plan meets the criteria of section 125 of the internal revenue code. Section 125 is the section of the irs tax code where the items that can be deducted from employee pay on a pre tax basis are defined. Reduced payroll taxes for employees who participate in the 125 cafeteria plan.