What is Code Section 125 compensation?

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.

What are the three types of section 125 plans?

There are three primary types of Cafeteria Plans:

  • Premium Only Plan (POP) When you are paying for any portion of your health insurance premium, a POP deducts your portion from payroll on a pre-tax basis, resulting in lower employee taxes.
  • Flexible Spending Account (FSA)
  • Dependent Care Assistance Plan (DCAP)

What qualifies as a section 125 cafeteria plan?

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.

What does Sec 125 mean on my w2?

SEC 125 is your employer’s benefit plan. It is also known as a “cafeteria plan”. Usually, what is reported there is your medical insurance premiums that are paid with pre-tax income. They are not taxed and are not included in your W-2 Box 1 wages so you can not deduct them as medical expenses. 0.

What is a 125 plan document?

A Section 125 Premium Only Plan document allows your employees to voluntarily agree to a “salary reduction” so that the employer can pay their insurance premium as a business expense.

Is life insurance a section 125?

Section 125 plans let employees use pre-tax dollars for these benefits, which include health and life insurance.

Is section 125 the same as HSA?

1. A Section 125 plan is just one of several ways for employers to help employees with funding their HSAs. Employers offering HDHPs face the choice of whether and how to help their employees with the funding of the employees’ HSAs.

What benefits are included in section 125?

A Section 125 plan typically lets employees use pretax money to pay for health insurance premiums (medical, dental, vision). Other options include retirement deposits, supplemental life or disability insurance, Health Savings Accounts, and various medical or dependent care expenses.

Is 401k part of section 125?

In principle, Section 125 plans are designed to prevent any type of deferment of employee income or compensation except through a 401(k) or other type of qualified retirement savings plan.

What taxes are Section 125 plans exempt from?

In the context of Section 125, “pre-tax” means that a deduction is exempt from Federal Income Tax Withholding, Social Security and Medicare Taxes. The employer also saves, because a Section 125 deduction also reduces the employer’s portion of the Social Security and Medicare tax liability.

Are Section 125 deductions reported on w2?

The total dependent care benefits the employer paid to the employee or incurred on the employee’s behalf (including amounts from a section 125 plan) should be reported in Box 10 of Form W-2.