Section 125 Definition

A 125 cafeteria plan is a written plan that allows employees to elect between permitted taxable benefits such as cash and certain qualified benefits.

Section 125 definition. 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. 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. It s called a cafeteria plan because like walking through a cafeteria and selecting various dishes to eat employees can choose the types of healthcare options they want such as medical dental vision and other benefits and decline the ones they don t.

These benefits may be. For provision that for purposes of section 125 of the internal revenue code of 1986 a plan shall not be treated as failing to be a cafeteria plan solely because under the plan a participant elected before january 1 1988 to receive reimbursement under the plan for dependent care assistance for periods after december 31 1987 and such assistance included reimbursement for expenses at a camp where the dependent stays overnight see section 10101 b 2 of pub. Section 125 of title 26 united states code created a specific exception to the tax laws that permitted employers and employees to establish flexible benefits programs that include health insurance.

Section 125 is officially an irs pretax vehicle nicknamed cafeteria plan because employees can choose pretax benefits like medical or dental insurance or opt to receive the equivalent amount on their paycheck paying taxes on it. With pre tax benefits you deduct the employee s contribution before you withhold taxes reducing their taxable income. If taken as a.

Section 125 is a written plan that lets employees choose between qualifying benefits and cash. A cafeteria plan also known as a section 125 plan is a written plan that offers employees a choice between receiving their compensation in cash or as part of an employee benefit.