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What is a Section 125?
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Who is
eligible for a Section 125?
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Who is eligible to participate in a Section 125
plan?
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What are the benefits of a Section 125 plan for
employers?
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What are the benefits of a Section 125 plan for
employees?
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What are the requirements of a Section 125?
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Why establish a Section 125 Cafeteria plan vs.
Section 105 or Health Savings Account 125 plan?
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How much can I
save in taxes with a Section 125?
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How
do I participate in a Section 125?
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How much can I contribute to a Section 125 plan?
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What
are eligible medical expenses?
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How do I get started with a Section 125?
What
is a Section 125?
A Section 125 Cafeteria Plan
sometimes known as a Flexible Spending Plan allows
employees to pay for certain medical expenses on a
pre-tax basis. By paying for these expenses before being
taxed, employees lower their taxable income, pay less in
taxes and increase their take home pay. These expenses
include:
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Employee contributions toward
medical-related insurance premiums.
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Medical-related expenses such as
deductibles, co-insurance, co-pays, or uninsured
medical expenses.
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Dependant care expenses.
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Who is
eligible for a Section 125?
Currently the
Internal Revenue Code
supports C corporations, S corporations, limited
liability companies (LLC’s), partnerships, sole
proprietors, professional corporations and non-profits
for Section 125 plans.
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Who is eligible to participate in a Section 125 plan?
Employees can be eligible to
participate in a Section 125 plan if they work for an
employer who has a plan in place. An employee would need
to qualify by the employer’s requirements to be
eligible. Companies from one employee, one thousand
employees, or any size are all eligible for Section 125
plans.
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What are the benefits of a Section 125 plan for
employers?
An employer saves the matching 7.65%
(FICA) on every dollar that an employee runs through a
Section 125 plan. Employers are also able to realize
other benefits such as:
- Cost Control – An employer
can control the company’s share of medical costs,
without limiting employee choices.
- Address the needs of a
diverse workforce – An employer can offer
individually tailored benefits at little or no
additional cost to the company.
- Recruit and Retain Quality
Employees – An employer is viewed in a positive
light by current and prospective employees because
of a benefit package is being provided with the
employee’s interests in mind.
- Depending on the particular
state, there may also be a workers compensation tax
savings.
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What are the benefits of a Section 125 plan for
employees?
Benefits of a Section 125 plan are
paying for medical expenses or dependant care with
pre-tax or tax-free dollars. Conservatively, employees
can save 15% to 35% on federal income taxes alone that
they set aside in a Section 125 plan. When factoring in
city, state, Social Security and Medicare (FICA) the tax
savings are a huge plus for today’s family’s to increase
cash flow and to help defray the high cost of medical
insurance and dependant care.
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What are the requirements of a Section 125?
An employer retains the ability to
set the requirements of a Section 125 plan. Probationary
periods, hours worked per week, years of service worked
and age requirements are all options for the employer to
set as requirements of a Section 125 plan. Utilizing our
free counseling services will empower you in making sure
you choose the most effective plan options and put you
in compliance with IRS requirements.
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Why establish a Section 125 Cafeteria plan vs. Section
105 or Health Savings Account 125 plan?
Although each has their respective
benefits depending on the tax situation, the Section 125
Cafeteria plan has no limit on the contributions by
either the employee or employer; covers
dependant care; covers transportation costs; and has no
medical insurance restrictions. Money in the Section 125
plan may not be carried over to the next plan year.
Conversely, the Health Savings
Account (HSA) is imposed a limit on funding, does not
cover dependant care or transportation costs and must be
tied to a High Deductible Health Coverage plan. Money in
a HSA plan may be carried over to the next plan year.
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How much can I
save in taxes with a Section 125?
An employer saves $.0765 on every
dollar pre taxed by an employee. Employees save $.30 on
every dollar pre taxed. On average and employer can
save $300 per employee in payroll taxes.
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How do I
participate in a Section 125?
An employee would determine at the
beginning of the plan year what funds they would like to
contribute on a pre-tax basis into the Section 125
account. Once per pay period a portion of that number
will be sent to the Section 125 account. When an
employee has a medical or daycare expense, the employee
would simply submit the expense to the Section 125 plan
administrator and would receive their tax-free dollars
in the mail or by direct deposit from the Section 125
plan administrator.
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How much can I contribute to a Section 125 plan?
For medical expenses, an employer and
the Section 125 plan administrator set a limit that can
be contributed to the Section 125 plan account. There
are no set limits as defined by the Internal Revenue
Service. There is however, a cap for dependant care set
at $5000 per family per year.
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What are
eligible medical expenses?
View
Eligible Medical Expenses for
section 125 plans.
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How do
I get started with a Section 125?
- Our plan document
services provided by TASC, pioneered the use
of Section 125 plans, allowing businesses to
save money on healthcare and other
out-of-pocket medical expenses. TASC
provides a long-term, value-oriented
approach to your Section 125 plan. However
it’s measured – dollars and cents or
reduction of late-night headaches and
worries – TASC provides consummate value to
our clients and providers.
- A true commitment to
low overhead with a no-nonsense approach
helps keep our fees low and makes our
service affordable.
- Our document service
partner offers well seasoned financial
professionals with years of experience. We
offer an unparalleled level of customer
service. We stand behind our services and
make sure everything is exactly right.
- An endorsement of
technology. From on-line communications to
faster processing to the Benefits Debit
MasterCard, we recognize the importance of
technology in making many aspects of
business more efficient. We continue to use
these methods as a way to save time, save
money, improve processes and generally make
things easier.
- A promise. As we head
into the future, you can count on our growth
and innovation to raise the level of our
services in every regard. Our goal remains
to continually increase customer
satisfaction.
- Audit guarantee.
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IRS Section 125 Information
IRS Dependent Care Information
