Section 125 Health Plan

With pre tax benefits you deduct the employee s contribution before you withhold taxes reducing their taxable income.

Section 125 health plan. This money is taken out of the individual s gross pay and can be used for items such as group health insurance premiums qualified out of pocket medical expenses and daycare for eligible dependents. Employees receive benefits as pre tax deductions. Employees like other americas must have health insurance coverage through an employer plan.

Cafeteria plans are employee benefit plans that meet the regulations of section 125 of the internal revenue code. Health savings accounts hsas. Section 125 is a written plan that lets employees choose between qualifying benefits and cash.

Employees enrolled in a section 125 plan can set aside insurance premiums and other funds pretax which can then be used on certain qualified medical and child care expenses. Section 125 i provides that a health fsa is not treated as a qualified benefit unless the cafeteria plan provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of 2 500 made to such arrangement 3. Its name derives from title 26 section 125 of the united states tax code which establishes the rules employers must follow when operating a cafeteria plan.

What is a section 125 employer health insurance plan. Like an fsa hsas enable people to set. The professionals at paychex make section 125 plans even more appealing by handling much of the frustrating work required to start and manage them so you can relax and enjoy the benefits.

The following section 125 cafeteria plan features offer employees significant tax and money saving advantages. Employees their spouses and dependents can all benefit from section 125 plans. The major contribution of section 125 was in the flexibility it afforded for employees to.

The basis of a section 125 plan is that it s a premium only plan pop and or a flexible spending account fsa. An fsa allows employees to pay for qualified out of pocket medical expenses on a. The pop aspect allows you the employee to pay into the employer sponsored health.