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.
ADMINISTRATION
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