Section 125 Plan Detail

Its name derives from title 26 section 125 of the united states tax code which establishes the rules employers must follow when operating a cafeteria plan.

Section 125 plan detail. If an employee makes the election before the start of the plan year and other 125 requirements are satisfied the employee s election of one or more qualified. A section 125 plan is something that the employer must maintain separately from the health insurance policy or any other benefit program that their employees participate in and the section 125 plan includes a summary plan description which should be updated annually. Section 125 is a written plan that lets employees choose between qualifying benefits and cash.

A section 125 cafeteria plan is an employer sponsored benefits plan that lets employees pay for certain qualified medical expenses such as health insurance premiums on a pre tax basis. Employees their spouses and dependents can all benefit from section 125 plans. Code where the treasury irs lays out the rules for employers wanting to allow employees the option of pre tax salary deductions to pay group health and related insurance premiums.

With pre tax benefits you deduct the employee s contribution before you withhold taxes reducing their taxable income. A section 125 plan is a written plan that allows participants to receive certain benefits called qualified benefits on a pretax basis. Employees receive benefits as pre tax deductions.

These benefits may be. 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. According to the irs a section 125 plan provides employees with an opportunity to receive certain benefits on a pre tax basis.

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. A 125 cafeteria plan is a written plan that allows employees to elect between permitted taxable benefits such as cash and certain qualified benefits. The professionals at paychex make section 125 plans even more appealing by handling much of the frustrating work required to start and manage them so you can relax and enjoy the benefits.

The formal definition of a section 125 plan to pre tax benefits says. This money is taken out of the individual s gross pay and can be used for items such as group health insurance premiums qualified out of pocket medical expenses and daycare for eligible dependents.