Section 125 / Cafeteria Plan Administration

0

Cafeteria plans increase employees take home pay at no expense to the employer. As a tax saving device, both employers and employees may enjoy significant tax savings. Cafeteria plans, also known as flexible benefits or Section 125 plans, give employees the opportunity to customize their benefit package to meet their particular needs. Cafeteria plans are specially authorized by Section 125 of the Internal Revenue Code.

If you are wondering exactly how much you and your employees can save through AdvanStaff’s 125 plan, try using our Savings Calculator.

  • Premium Only Plan

Section 125 of the Internal Revenue Code allows employers to set up a Premium Only Plan as a benefit for employees enrolled on certain benefit plans. With the implementation of a POP, employees may pay for their portion of premiums on a pretax basis. When you pay for premiums on a pretax basis, you are lowering your taxable income; therefore reducing your payroll taxes.

A Premium Only Plan (POP) reduces your payroll taxes by letting your employees use pre-tax dollars to pay for their group health, dental, and term life insurance premiums. A Flexible Spending Account is an optional service that augments the POP by allowing employees to pay for out-of-pocket health and dependent care expenses, not covered by a POP, with pre-tax dollars.

  • Medical Reimbursement Plan

The purpose of a Medical Reimbursement Plan is to allow eligible employees the ability to pay for certain health expenses (that are not covered under the Company’s group health plans) with pretax dollars. Under Sections 105, 106 and 125 of the Internal Revenue Code, Employers may create a Cafeteria Plan whereby eligible employees reduce their annual compensation to pay for these expenses. With this reduction in compensation, the employee’s taxable base decreases, therefore lowering payroll taxes. A Medical Reimbursement Plan is an optional service that augments the Cafeteria Plan by allowing employees to pay for out-of-pocket health expenses, not covered by a POP, with pre-tax dollars.

  • Dependent Care Reimbursement Plan

The purpose of a Dependent Care Reimbursement Plan is to allow eligible employees the ability to pay for eligible dependent care expenses with pretax dollars as provided in Section 129 of the Internal Revenue Code. Eligible Employees may enroll in the Dependent Care Reimbursement Plan and reduce their annual compensation to pay for these expenses. With this reduction in compensation, the employee’s taxable base decreases, therefore lowering payroll taxes. A Dependent Care Reimbursement Plan is an optional service that augments the POP by allowing employees to pay for out-of-pocket dependent care expenses, not covered by a POP, with pre-tax dollars.