Section 125 Cafeteria Plans are plans designed to allow employees to pay for certain expenses, such as group insurance benefits, unreimbursed medical expenses, and dependent care costs with pre-tax dollars. This enables employees to choose where benefit dollars are spent. It is one of the few employee benefit plans that allow both the employee and employer to save. Premium Only Plans Premium Only Plans are the most widely known of all the cafeteria plans. This plan reduces the income tax liabilities for the employer and employee. IRS Section 125 allows employees to make salary deduction elections to pay their portion of medical insurance costs using pre-tax dollars. The following are examples of group medical premiums that are qualified to be pre-tax:
  • Group Health Insurance
  • Dental Insurance
  • Vision Insurance
  • Disability Insurance
  • Group Term Life Insurance
Health Flexible Spending Accounts (FSA) Health Flexible Spending Accounts allow employees to use pre-tax dollars to bridge the gap between out-of-pocket expenses not covered by health insurance. The Health FSA reduces payroll taxes for the employer and employee making it a popular benefit option. For the employee, it’s like receiving a 30% discount on medical, dental and vision care expenses! Internal Revenue Service Publication 502 lists the eligible tax-free expenses. The expenses must be incurred by the employee or their dependents while participating in the plan. With the help of FSAStore and HealthShopper, purchasing eligible expenses has never been easier!

Dependent Care Flexible Spending Accounts

Dependent Care Flexible Spending Accounts enable employees to make special pre-tax elections from their paycheck to fund child and adult daycare expenses. The expenses must be necessary to allow one or both parents to work, look for employment, or go to school.

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