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Section 125 Section 125 of the Internal Revenue Code has increased the options available to both employers and employees when it comes to health insurance. Under Section 125, employees are allowed to redirect a portion of their salaries for certain allotted expenses on a pre-tax basis. These reductions lessen an employee's taxable income, thereby lowering the total amount they pay in federal income tax, social security and most state taxes. Tax-Free Benefits of Section 125 Plans There are several types of IRS Section 125 plans. With tax-free insurance premiums, employees can pay for their share of a group insurance premium prior to the deduction of taxes. While this type of plan does result in a tax savings for employees, there are other 125 plans that offer even greater benefits. Tax-free flexible saving accounts from take care are another such plan. Employees determine a set dollar amount to be deducted from each paycheck before taxes are calculated. This total is then placed in an account that can then be used to pay for certain out of pocket medical expenses with tax-free dollars. Some eligible expenses include co-pays, dental expenses, and in many cases, childcare and dependent care. Another section of the IRC often associated with Section 125 is Section 132(f). This section of the code allows employees to pay for qualified transportation expenses with tax-free dollars. These expenses can often be paid for out of an employee's flexible spending account. It is important to note, though, that there are some differences between various plans and it is important to check with your provider to determine your specific coverage. |
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 IRS Section 125 Cafeteria Plans 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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