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. Typically, they can use the pre-tax money to pay for health insurance premiums, retirement deposits, or other benefit options.

Is a cafeteria plan pre-tax?

Employee contributions toward cafeteria-plan benefits are made pre-tax. Employer contributions toward an employee’s cafeteria-plan benefits are not taxed.

Is cafeteria plan included in gross income?

A Cafeteria Plan allows the employer to reduce employees’ gross income, thereby reducing the amount the company pays in Federal Insurance Contributions Act (FICA or Social Security), Federal Unemployment Tax Act (FUTA), Workers’ Compensation, and some state taxes.

Is Section 125 subject to Social Security tax?

Certain contributions made through a Section 125 plan are exempt from federal income tax in the usual way but they are subject to Social Security and Medicare taxes. These benefits include 401(k) contributions and adoption assistance.

What is included in cafeteria plan?

Cafeteria plans allow employees to choose from a variety of pre-tax benefits. These plans are often more flexible than others. Employees have several pre-tax options including insurance benefits, retirement plans, and benefits that help with life events.

What are the benefits of a section 125 cafeteria plan?

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 plans let employees use pre-tax dollars for these benefits, which include health and life insurance. Cafeteria Plan Advantages

Can a cafeteria plan be paid with pretax dollars?

Although all cafeteria plans must satisfy key Section 125 provisions, not all plans are the same. The simplest form is a premium-only-plan (POP), which permits employees to pay premiums with pretax dollars.

What are the different types of Section 125 plans?

Section 125 plan types. As with food service, a cafeteria plan allows employees to pick benefits from a menu of offerings. Any costs beyond the maximum your company will pay then become the responsibility of the employees, paid for via payroll deductions throughout the year.

What is the name of the cafeteria plan?

Cafeteria plans are often referenced by other names — most notably, POP, section 125, pretax plan and flexible benefits plan.