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IRS Section 125 Cafeteria Plans Under IRS Section 125, employers can offer their employees a choice of benefits or cash and qualified benefits. Any qualified benefits chosen by an employee are not considered income and are therefore not subject to taxes. Cash, on the other hand, is treated as income and taxed appropriately. How IRS Section 125 Cafeteria Plans Work It is important to note that IRS Section 125 cafeteria plans do not include deferred compensation. How exactly does this affect you? It means that the money contributed towards cafeteria plan benefits cannot be rolled over to the next year. The terms set forth in a specific plan apply to the whole year and elections must be made at the time of enrollment. There is one exception to the deferred compensation rule, namely, a Section 401(k) plan. One benefit commonly associated with IRS Section 125 cafeteria plans is a flexible spending account. Flexible spending accounts are one type of benefit offered under Section 125. These accounts allow you to use tax-free dollars to pay for medical expenses not covered under your employer's health insurance plan. Since the money contributed to these accounts is deducted prior to tax calculations, they allow you to keep more of your paycheck and reduce your overall tax contribution. IRS Section 125 cafeteria plans, like those offered through take care, can cover a wide range of benefits, including health care, dental care, vision care, dependent care, adoption services and elder care. Employees have control over both which benefits they wish to receive and how much they wish to contribute to each. This gives employees more control over their healthcare costs. |
Additional Topics Consumer-Directed Health Plans Consumer-Driven Health Accounts Dependent Care Flexible Spending Accounts Flexible Health Spending Accounts Flexible Medical Expense Accounts Health Care Flexible Spending Accounts Health Reimbursement Arrangements Medical Expenses and Income Tax Plan for Medical that Health Insurance Doesn't Cover Save 25% to 40% on Health Expenses Save on Co-Pays and Over-the-Counter Medications Save on LASIK and Orthodontic Costs Section 125 Plan Administration |
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