What Is 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 section 125 cafeteria plan. 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. It provides participants an opportunity to receive certain benefits on a pretax basis. No federal or social security taxes.

Section 125 cafeteria plans provide savings and benefits for both the employer and the employees the plan must meet the requirements of irs section 125 by offering at least one taxable benefit and one qualified benefit employees get savings flexibility and control of health spending. Employees their spouses and dependents can all benefit from section 125 plans. 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.

Once a plan is created the benefits are available to employees their spouses and dependents. Depending on the circumstances and details. If taken as a.

Section 125 cafeteria plans must be created by an employer. 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. 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.

Employees receive benefits as pre tax deductions. Section 125 plans let employees use pre tax dollars for these benefits which include health and life insurance. With pre tax benefits you deduct the employee s contribution before you withhold taxes reducing their taxable income.

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.