Section 125 Cafeteria Plan

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.

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. A cafeteria plan is a type of employee benefit plan offered in the united states pursuant to section 125 of the internal revenue code. A 125 cafeteria plan may offer only qualified benefits.

A cafeteria plan includes premium only plans and flexible spending accounts is an employee benefits program designed to take advantage of section 125 of the internal revenue code. Accordingly a cafeteria plan that fails to comply with 125 i for plan years beginning after december 31 2012 is not a 125 cafeteria plan and the. Reduced payroll taxes for employees who participate in the 125 cafeteria plan.

It provides participants an opportunity to receive certain benefits on a pretax basis. A cafeteria plan allows employees to pay certain qualified expenses such as health insurance premiums on a pre tax basis thereby. As a result the employer s fica futa suta and workers compensation costs are also lower.

A section 125 cafeteria plan lets a business owner offer affordable employee benefits while giving themselves a payroll tax break. Its name comes from the earliest such plans that allowed employees to choose between different types of benefits similar to the ability of a customer to choose among available items in a cafeteria qualified cafeteria plans are excluded from gross income. Section 125 cafeteria plan.

Section 125 cafeteria plans also provide several important advantages to employers especially those who own a small business. Once a plan is created the benefits are available to employees their spouses and dependents. Section 125 cafeteria plans must be created by an employer.

In a section 125 plan or cafeteria plan employees can pay qualified medical dental or dependent care expenses on a pretax basis which has the effect of reducing their taxable income as well as their employer s social security fica liability federal income and unemployment taxes and state unemployment taxes where applicable. 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. 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.