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Section 125 Cafeteria Plans
A Section 125 or cafeteria plan is an employer-sponsored benefit plan that gives employees certain taxable and nontaxable pretax benefits. Money is taken from an employee’s gross pay and can be used for specific benefits that suit their lifestyle, like group health insurance premiums, qualified out-of-pocket medical expenses, and daycare for eligible dependents. At the same time, employees will lower their Medicare and Social Security tax liabilities.
Employers benefit, too. They will see a reduced amount of Federal Insurance Contribution Act (FICA) and federal unemployment (FUTA) taxes paid. There may also be additional savings on withholding taxes in some states.
There are various types of Section 125 plans.
Premium Only Plans (POPs)
With a POP, an employee’s pretax contributions can be used to cover the cost of group health insurance premiums.
Flexible Spending Accounts (FSAs)
FSAs are employer-sponsored healthcare spending accounts that allow employers and employees to contribute funds with tax-free dollars up to a certain amount. An FSA can be used to pay for prescriptions, approved over-the-counter (OTC) medications, and diabetes supplies. Employees can also use medical FSA funds to cover expenses such as dental care, vision care, and medical copayments. In addition, a dependent care FSA helps cover the cost of care for children and dependent adults who require daycare services.
Simple Cafeteria Plans
Employers with 100 employees or fewer can receive safe harbor from plan non-discrimination tests if they contribute the same benefit to each eligible employee.
Full-Flex Plans
Eligible employees purchase benefits using contributions from their employer. The employee can pay for any benefit not fully covered by the employer via pretax payroll deductions.
James Campbell & Associates (JCA) can assist you in offering employees a cafeteria plan, including choosing what plan is right for your company and ensuring you comply with regulations.
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Our commitment is to provide clients with the tools, resources, and strategies to make fully informed decisions regarding benefit plans – for the protection and well-being of their most critical asset: their employees, and families.
For more information about how we can make a difference for your business and employees, give us a call at (850) 561-8700.