What Is Section 125 On Paycheck

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.

What is section 125 on paycheck. 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 employer also saves because a section 125 deduction also reduces the employer s portion of the social security and medicare tax liability. Under a section 125 plan you may choose to pay your medical premiums unreimbursed medical expenses and dependent child care before any taxes are deducted from your paycheck.

Section 125 is part of the internal revenue code that allows employees to convert a taxable cash benefit salary into non taxable benefits. Employees their spouses and dependents can all benefit from section 125 plans. A section 125 plan is the only means by which you can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable.

A section 125 plan also known as a cafeteria plan allows employees to convert otherwise taxable items such as a salary into nontaxable benefits if they so choose. However there are four exceptions to this general rule. Employees receive benefits as pre tax deductions.

If your employer has enrolled you in a s125 plan they may notate this on box 14 of your w 2 using the term s125. According to the irs a section 125 plan provides employees with an opportunity to receive certain benefits on a pre tax basis. These benefits may be.

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 typically prohibits the deferral of compensation. The plan is called a cafeteria plan because it includes a menu of benefits for employees to choose from.

In the context of section 125 pre tax means that a deduction is exempt from federal income tax withholding social security and medicare taxes. Section 125 is a written plan that lets employees choose between qualifying benefits and cash. Section 125 of the internal revenue code refers to cafeteria plan benefits.