What is Med 125 on my paycheck?
Section 125 is part of the Internal Revenue Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 plan, you may choose to pay your medical premiums, unreimbursed medical expenses and dependent child care before any taxes are deducted from your paycheck.
What is a Section 125 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. This tax savings usually more than covers the costs associated with setting up a plan and administering it.
What are section 125 wages?
What Is a Section 125 (or Cafeteria) Plan? A Section 125 plan is part of the IRS code that enables and allows employees to take taxable benefits, such as a cash salary, and convert them into nontaxable benefits. These benefits may be deducted from an employee’s paycheck before taxes are paid.
What is a 125 deduction?
Section 125 is the section of the IRS tax code where the items that can be deducted from employee pay on a pre-tax basis are defined. In the context of Section 125, “pre-tax” means that a deduction is exempt from Federal Income Tax Withholding, Social Security and Medicare Taxes.
How do I report section 125 on my w2?
Box 14. Your employer may report your cafeteria plan deductions in Box 14, which is labeled “Other.” It might use the code “Section 125” or “Café 125,” and then state your pretax payments. This data is optional and can clear up any confusion you have about the amount in Box 1.
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.
Is Section 125 nondiscrimination testing required?
The IRS requires non-discrimination testing for employers who offer plans governed by Section 125, which includes a flexible spending account (FSA). And though they aren’t part of Section 125, testing is also required for health reimbursement arrangements (HRAs) and self-insured medical plans (SIMPs).
How does a Section 125 plan Work?
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 401k a section 125?
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 plans are sometimes referred to as Section 125 Plan (from the applicable IRS code) or a flexible benefits plan.
Is life insurance a section 125?
Section 125 plans let employees use pre-tax dollars for these benefits, which include health and life insurance.
What kind of health insurance is included in Section 125?
Health insurance is a core aspect of a Section 125 plan. Your employer may offer a full range of health benefits, including medical, dental, vision, accidental death, dismemberment and disability insurance. Or it may stick to the basics of medical and dental.
What are the benefits of a section 125 cafeteria plan?
Section 125 Cafeteria plans provide savings and benefits for both the employer and the employees. The plan must meet the requirements of IRS section 125 by offering at least one taxable benefit and one qualified benefit. Employees get savings, flexibility, and control of health spending.
What does HRA stand for in Section 125?
HRA – the Health Reimbursement Account works with health plans to reduce expenses. The IRS code defined a section 125 plan. The cafeteria plan had minimum formality and requirements but had a wide range of potential options.
What can Section 125 money be used for?
The primary advantage to employees is the range of healthcare options that allows them to use Section 125 money to fit their needs. Typically, they can use the pre-tax money to pay for health insurance premiums, retirement deposits, or other benefit options.
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