How Do I Set Up A Section 125 Cafeteria Plan

This plan allows employees to choose to withhold pre tax salary to cover the cost of specific benefits or to choose between taxable and non taxable.

How do i set up a section 125 cafeteria plan. An employee can generally exclude from gross income up to 5 000 of benefits received under a dependent care assistance program each year. 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. Enter a name for your payroll item for example 125 health insurance plan and then select next.

It can help businesses save money while keeping employees happy. Enough commission on a section 125 cafeteria plan to bother explaining the concept. A full section 125 cafeteria plan allows for fsa flexible spending accounts and dependent child care to be deducted from payroll on a pre tax basis for eligible out of pocket expenses but also most commonly includes the premium only plan language with the eligible benefit premiums.

Select the payroll item new. A section 125 cafeteria plan lets a business owner offer affordable employee benefits while giving themselves a payroll tax break. 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.

How is this benefit reported on form w 2. Section 125 of the internal revenue code irc governs cafeteria plans. These benefits can include health insurance child care adoption assistance life insurance and health savings accounts.

Although all cafeteria plans must satisfy key section 125 provisions not all plans are. A town has a cafeteria plan section 125 plan which offers dependent care assistance. How do cafeteria plans work.

Choose lists payroll item list. Select custom setup next. An employer needs to set up the plan with proper documentation notify employees and perform nondiscrimination testing.