Most working Americans have access to a section 125 cafeteria plan at a time during their careers working, but many do not take full advantage of them. When used properly, can increase a cafeteria plan take-home pay without changing the spending. This article gives an overview of how § 125 cafeteria plans work.
What is 125 Cafeteria Plan for a §?
A "cafeteria plan" (§ 125 of the IRS code see) is an advantage from an employer provided the employee allowed a certain amount of its gross income to a specific "account" to contribute pre-tax will. This "account" may be used to reimburse the employee for certain types of insurance premiums, medical or nursing care costs throughout the plan year or claim period as the employee incurred qualified costs.
Essentially a § 125 cafeteria plan allows employees to reduce their gross income, the effective amount they reduce taxes in Federal, Social Security, and pay some state. This represents a saving of between 25% and 40% of every dollar they contribute to the plan. The employer also realized savings in FICA withholding tax for each participating employee.
How does the Affordable Care Act impacts § 125 cafeteria plans?
The Affordable Care Act restricts what kind of health insurance premiums to 125 cafeteria plan can be used with §. In particular, health insurance marketplace (Exchange) plans are not qualified performance according to § 125 Because of this change, now most employers use § 105 plans for individual health insurance.
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Common examples of § 125 cafeteria plans
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Premium plans (also known as POPs, see )
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Flexible Spending accounts (see aka FSAs, an overview of FSAs)
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contributions to health savings accounts (akaHSAs, see
What questions have you as cafeteria plans work? Leave a comment or question below.
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