A Cafeteria Section 125 Plan (or sometimes called Flexible Benefit Plan) is a qualified employee benefit plan allowed under Section 125 of the Internal Revenue Code. It enables an employer to reduce FICA and FUTA taxes by allowing employees to pay certain expenses – such as health insurance premiums (including medical, dental and cancer), dependent day care costs, and unreimbursed medical expenses – BEFORE TAXES and NOT AFTER. Lower taxable income to the employees results in lower payroll taxes to the employer. Employees receive greater take-home pay due to the savings of FICA and Federal Income taxes.
Any company whose employees pay a portion of their health premiums for themselves or dependents, is a good candidate for a Cafeteria Plan. This includes almost all employers; and, although sole proprietors and Sub-S shareholders cannot participate themselves, their employees are eligible (which will directly benefit the owners by reducing FICA taxes).
Cafeteria Plans operate on a 12-month plan year. Salary reductions under a Cafeteria Plan must be a specified amount per period and CANNOT be changed during the plan year to match expenses unless there is a change in the “family status” of an employee (marriage, divorce, death of spouse or child, birth or adoption of child, or termination of employment of spouse), or a change in an insurance premium amount. Nor can salary reductions be automatically reimbursed without expenses being incurred.
Different options, depending upon the payroll procedure of the employer, are certainly available – as Pension Concepts knows that flexibility is important for each of our clients.
- Reimbursement Set-up: Debit Cards, Direct Deposit, and/or Paper Checks
- Online Claims Submission
- 24/7 Internet Access – for both Participants and Employer – indicating claims submission, reimbursement totals and balance information
- Annual online enrollments
- IRS Form 5500 Filing (if applicable)
Pension Concepts – Employee Benefit Specialists since 1974