Section 125 Cafeteria Plans

Cafeteria plans, sometimes referred to as Section 125 because of the tax code where the law is spelled out, are a way for employers to use pretax earnings to cover qualified healthcare expenses. These type of plans are appealing to employees because it offers them a greater level of choice in determining their own benefits (think choosing from food selections at a cafeteria). For business owners, a cafeteria plan can be a good way to reduce taxes and payroll expenses.

A qualified section 125 plan must give employees a choice between a taxable and nontaxable benefit option. Businesses that offer a cafeteria plan to their employees allow them to make their own choices about group health plans, health savings accounts, life insurance and long-term care.

Flex spending accounts are one of the more popular benefit choices that fall under the umbrella of section 125.

The are benefits on both sides when a company offers employees a cafeteria plan. Employees that have regular health care expenses can reap significant tax benefits, especially from an FSA, since much of the cost can be covered essentially tax-free. For employers, a section 125 plan allows them to save money on both payroll and taxes through the tax-sheltered status of the benefit.

Want to know about cafeteria plans? This resource from the IRS covers some of the commonly asked questions regarding section 125 regulations.

Call us today at the number at the top of the page if you’d like to learn more about the benefits of offering a section 125 cafeteria plan! We offer FREE cost estimates for business owners and employee groups, over the phone and through our online form. We’re happy to answer your questions!

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