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What are section 125 documents?
A Section 125 Premium Only Plan document allows your employees to voluntarily agree to a “salary reduction” so that the employer can pay their insurance premium as a business expense.
Why would an employer want to offer a Section 125 cafeteria plan?
Participating in a cafeteria plan reduces an employee’s taxable salary and increases the percentage of their take-home pay, thus increasing their spendable income. 2. They receive a greater deduction on dependent care expenses than what’s offered by a traditional tax credit at the end of year.
When should I update my Section 125 plan document?
Section 125 of the Internal Revenue Code (the Code) requires that Premium Only or Cafeteria plan documents be updated every five years. This means drafting a new document and giving a copy to every employee eligible for the plan.
What is a section 125 cafeteria plan?
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.
What is a cafeteria plan?
Mark HenricksApr 16, 2019 A cafeteria plan – also known as a Section 125 plan, after the portion of the IRS code that regulates the plans – lets employees redirect part of their salaries and wages to pay for certain benefits. Section 125 plans let employees use pre-tax dollars for these benefits, which include health and life insurance.
How much can you contribute to a section 125 plan?
In 2022, employees can contribute up to $2,850 to a cafeteria plan. Another benefit that some employees can take advantage of under Section 125 is the health savings account (HSA).
What are the rules for a school cafeteria plan?
Cafeteria Plan Requirements The rules in IRS Section 125 require each cafeteria plan to be governed by a written plan document. Plans are only allowed to offer certain benefits. Plans have to pass non-discrimination tests and follow compliance rules about things like notifications.