What is a Section 125 cafeteria plan?
What qualifies as a 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. It provides participants an opportunity to receive certain benefits on a pretax basis.
What benefits can be included in a cafeteria plan?
Cafeteria Plan
- A cafeteria plan is an employee benefit plan that allows staff to choose from a variety of pre-tax benefits. …
- Cafeteria plan selections include insurance options such as health savings accounts (HSAs) contributions, group term life insurance, and disability insurance.
Is 401k considered a cafeteria plan?
A 401(k) cafeteria plan allows employees who are participating in their employer’s 401(k) plan to also choose additional types of benefits from a smorgasbord of options on a pretax basis. These benefits can include: Group term life insurance.
Is 401k part of section 125?
A Section 125 plan typically prohibits the deferral of compensation. However, there are four exceptions to this general rule: When dealing with cash or deferred arrangements involving a 401(k) plan that allows employees to contribute part of their salary on a pre-tax basis.
Are Section 125 deductions reported on w2?
Cafeteria, or Section 125 plans include employer-sponsored benefits that are exempt from federal and typically, state taxes. Your employees pay for these benefits with pre-tax money, which you don’t include in their taxable wages on their annual W-2s.
Is a cafeteria plan the same as an HSA?
It’s called a cafeteria plan because employees choose the benefits they want, just as they choose the items they want from the company cafeteria. Funding a health savings account, commonly referred to as an HSA, may be an option under a cafeteria plan.
What is Section 125 payroll deduction?
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 …
Is a cafeteria plan worth it?
Cafeteria plans are particularly good for participants who have regular expenses related to medical issues and child care.
What is cafeteria allowance?
1. „Cafeteria approach‟ shall be adopted for other perquisites and allowances allowing. employees to choose from a given set of cafeteria of perquisites and allowances subject to the condition that the sum total of these perquisites and allowances shall not exceed 35% of the revised basis pay.
What is the difference between a premium only plan and a cafeteria plan?
One of the most common (if not the most common) forms of Section 125 plans is a premium-only plan (aka “Section 125 POP”, “POP plan”, “Premium-only Cafeteria Plans”). A Section 125 premium-only-plan (POP), is a cafeteria plan which allows employees to pay their health insurance premiums with tax-free dollars.
What does less Other Cafe 125 mean on your w2?
These cafeteria plans allow employees to set aside pre-tax income for certain employer-offered benefits. Benefits provided by plans covered under section 125 include adoption and dependent care assistance, health insurance, 401k and group term life insurance policies.
What are some pros and cons of cafeteria benefits plans?
What Are the Pros and Cons of Cafeteria Plans?
- Just like their employees, employers get tax savings too.
- The payroll tax savings offset the employer’s benefits cost.
- All employees benefit from the plan, regardless of participation.
- They are complicated.
- Employees are locked into their plan choices for one year.
What are the four categories of cafeteria plans?
What is a cafeteria plan?
- Flex Account. One of the most common cafeteria plans is a flex account, or flexible spending account (FSA). …
- POP Plan. Next is a Premium Only Plan (POP). …
- Dependent Care Account. Finally, the last type of cafeteria plan is a Dependent Care flexible spending account.
How do I set up a Section 125 cafeteria plan?
To set up a Cafeteria Plan Employee payroll item with Custom Setup:
- Choose Lists > Payroll Item List.
- Select the Payroll Item > New.
- Select Custom Setup > Next.
- Select Deduction > Next.
- Enter a name for your payroll item (for example, 125 Health Insurance Plan), and then select Next.
What is the difference between a pop and Section 125?
The Premium Only Plan (POP) is the building block of the Section 125 plan; this is the portion that allows you to pay group insurance premiums with pre-tax dollars. In addition, your POP plan is the foundation for all other tax savings plans such as Flexible Spending Accounts and Health Savings Accounts.
What is a Section 125 compliance 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.
Why do I need a Section 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 it cost to set up a Section 125 plan?
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. Employers save an average 8% to 10% in payroll taxes, too.