What Is A Section 125 Cafeteria Plan

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 it.

What is a section 125 cafeteria plan. No federal or social security taxes. A 125 cafeteria plan is a written plan that allows employees to elect between permitted taxable benefits such as cash and certain qualified benefits. Employees receive benefits as pre tax deductions.

These benefits may be. Section 125 of the internal revenue code irc specifies that cafeteria plans are exempt from the calculation of gross income for federal income tax purposes. It s called a cafeteria plan because like walking through a cafeteria and selecting various dishes to eat employees can choose the types of healthcare options they want such as medical dental vision and other benefits and decline the ones they don t.

It provides participants an opportunity to receive certain benefits on a pretax basis. Employees their spouses and dependents can all benefit from section 125 plans. 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.

Section 125 is a written plan that lets employees choose between qualifying benefits and cash. A cafeteria plan also known as a section 125 plan is a written plan that offers employees a choice between receiving their compensation in cash or as part of an employee benefit. With pre tax benefits you deduct the employee s contribution before you withhold taxes reducing their taxable income.

Employees could spend the contributions on qualified expenses including health insurance premiums medical expenses dependent care medical supplies and disability 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 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.

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.