Hsa Section 125

In a section 125 hsa employee contributions are taken as pre tax salary deductions according to the election form completed during open enrollment period.

Hsa section 125. The money that accumulates in the plan can be used for approved expenses. Cafeteria plans are employee reimbursement plans that are governed by section 125 of the irs tax code. About hsas and section 125 a health savings account hsa is a tax savings benefit for employees.

A section 125 cafeteria plan is an employer sponsored benefits plan that lets employees pay for certain qualified medical expenses such as health insurance premiums on a pre tax basis. Section 125 plans the taxes saved by the participating employee are federal income tax state income tax and fica social security and medicare tax. This generally results in a total tax savings of approximately 28 65 or more and a savings for the employer of 7 65 fica for each employee enrolled in the plan.

Elections under a 125 cafeteria plan section 125 d 1 of the internal revenue code code defines a 125 cafeteria plan as a written plan maintained by an employer under which all participants are 3 employees and all participants may choose among two or more benefits consisting of cash and qualified benefits. The plan allows employees to allocate a specific portion of their pre tax salary to the plan. So while not the only way for an employer to make contributions into an individual s hsa money that is then owned by the employee and cannot be retrieved by the employer the section 125 plan is the most common as these plans are well established providing an existing set of rules an hr department can plug the hsa contributions into both employer and employee if elected.

These benefits may be. 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 where applicable. 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.

Section 125 cafeteria plans health flexible spending arrangements not subject to 2 500 limit on salary reduction contributions for plan years beginning before 2013 and comments requested on potential modification of use or lose rule.