Section 125 Pre Tax

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 pre tax. With pre tax benefits you deduct the employee s contribution before you withhold taxes reducing their taxable income. A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the internal revenue code. Employees receive benefits as pre tax deductions.

It provides participants an opportunity to receive certain benefits on a pretax basis. Section 125 is the section of the irs tax code where the items that can be deducted from employee pay on a pre tax basis are defined. Section 125 is a written plan that lets employees choose between qualifying benefits and cash.

In the context of section 125 pre tax means that a deduction is exempt from federal income tax withholding social security and medicare taxes. 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.