Is Your Section 125 Plan Up to Date?
A Section 125 plan, or a cafeteria plan, allows employers to provide their employees with a choice between cash and certain qualified benefits without adverse tax consequences. Employees who participate in a cafeteria plan can pay for qualified benefits, such as group health insurance, on a pretax basis. This reduces both the employee’s and the employer’s tax liability. Without a Section 125 plan, employers can face huge penalties upwards of one million dollars.
Examples of Qualified Benefits Within a Section 125 Plan:
- Medical plan coverage
- Dental and vision coverage
- Health FSAs
- Dependent care FSAs
- HSAs
- Life insurance coverage
- Disability benefits
What are the advantages for employees to participate in a Section 125 Plan?
Employees who participate in a Section 125 plan receive the following advantages:
- An employee realizes an increases in his or her spendable income by:
- Paying his or her portion of insurance premiums with pretax dollars; and
- Paying out-of-pocket medical expenses with pretax dollars set aside in an FSA
If you have questions about your current Section 125 Document, or need help properly setting this up to remain compliant, give us a call at 954-375-7771