What is a section 125 plan on w2?
A section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable.
What does Sec 125 mean on my paystub?
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.
What is a 125 plan document?
Overview 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.
Is a Section 125 plan a good idea?
In addition to medical, dental, and vision, section 125 plans are a valuable, cost-saving benefit. Employees enjoy the flexibility of using these accounts so they can better control their tax liabilities.
Does Section 125 plan reduce taxable income?
What are section 125 plan deductions? Contributions to cafeteria plans are withheld on a pretax basis, thereby lowering taxable income, which means employees pay less in federal income tax and Medicare and Social Security taxes.
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.
How does an employer set up a Section 125 plan?
To start a section 125 benefits plan, employers have to draft a document that outlines the benefits offered, contribution limits, participation rules and other information required by the IRS.
Who is not eligible for Section 125 plan?
However, the following individuals are NOT eligible to participate in Section 125 Cafeteria Plan, Flexible Spending Account (FSA), or Premium Only Plan (POP), or any of its qualified benefits: More than 2% shareholder of an S-corporation, or any of its family members, Sole proprietor, Partner in a partnership, or.
Who needs a Section 125 document?
125 plan. Income tax savings for the employee: A Sec. 125 plan is required for employers who want to allow employees to choose the qualified benefits they want and avoid paying income taxes on the amount of wages they contribute to obtain those benefits.
How much does a Section 125 cost?
The IRS requires a Section 125 Plan Document so that employees can pay for health premiums, FSA contributions, and other group benefits with tax-free payroll deductions.
How much does it cost to set up a Section 125 plan?
Typically a plan document and necessary forms will cost anywhere from $100-$600 through an attorney or tax advisor. Many payroll providers charge set-up fees as much as $600 but once you have the document you will be required to update as new legislation is available.
How much does a Section 125 plan cost?
Is a cafeteria plan worth it?
As an employer, the main advantage to having a cafeteria plan is tax savings. As your employees’ taxable wages are lowered, your payroll taxes lower. FICA, FUTA, SUTA, and Workers’ Compensation rates are all reduced. With those savings in your pocket, the cost of setting up a cafeteria plan is reduced.