How Do I Set Up A Section 125 Plan?

How much does it cost to set up a Section 125 plan?

Section 125 Plan Document package $99.

The IRS requires a Section 125 Plan Document so that employees can pay for health premiums, FSA contributions, and other group benefits with tax-free payroll deductions.

Employers save an average 8% to 10% in payroll taxes, too..

What is Section 125 on a w2 form?

Section 125 is the section of the IRS tax code where the items that can be deducted from employee pay on a pre-tax basis are defined. In the context of Section 125, “pre-tax” means that a deduction is exempt from Federal Income Tax Withholding, Social Security and Medicare Taxes.

Who is not eligible for Section 125 plan?

The Section 125 rules specifically prohibit the following individuals from participating: • Self-employed individuals; • Partners within a partnership; and • More than 2 percent shareholders in a subchapter S corporation (S corporation).

How does a Section 125 Plan Work?

A section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable. A plan offering only a choice between taxable benefits is not a section 125 plan.

What are Section 125 benefits?

In a section 125 plan or cafeteria plan, employees can pay qualified medical, dental, or dependent-care expenses on a pretax basis, which has the effect of reducing their taxable income as well as their employer’s Social Security (FICA) liability, federal income and unemployment taxes, and state unemployment taxes …

What is a section 125 qualifying event?

Examples of “Qualifying Life Events” include, but are not limited to: ❖ A Birth or an Adoption. ❖ Marriage, Divorce. ❖ Death of a Spouse or Dependent. ❖ Child loses eligibility because of age or marriage. ❖ Employee’s spouse gains or loses coverage through employment.

What are the requirements for a Section 125 plan?

A Section 125 plan must offer employees a choice between at least one taxable benefit (such as taxable compensation) and one or more qualified benefits. Benefits that are not qualified benefits cannot be offered under a Section 125 plan.

Do I need a Section 125 plan document?

Section 125 of the Code clearly states that “a written plan” is required as part of a Cafeteria Plan that allows employees to choose to participate in a plan with qualified benefits. … Therefore, tax-advantage treatment of employee group benefits is not allowed without a written plan document in place.

Can owners participate in a Section 125 plan?

They are considered self-employed. Only employees can participate in pre-tax benefits through a Section 125 cafeteria plan. … So, owners may generally participate in the plan, but certain owners cannot participate on a pre-tax basis under Section 125.

Is 401k a Section 125 plan?

When dealing with cash or deferred arrangements involving a 401(k) plan that allows employees to contribute part of their salary on a pre-tax basis. … Your matching contributions as an employer are also allowed to be deferred as part of the Section 125 plan.

Are Section 125 plans taxable?

A section 125 plan is part of the IRS code that enables and allows employees to take taxable benefits, such as a cash salary, and convert them into nontaxable benefits. These benefits may be deducted from an employee’s paycheck before taxes are paid.

What is a premium only Section 125 plan?

A Section 125 premium-only-plan (POP), is a cafeteria plan which allows employees to pay their health insurance premiums with tax-free dollars. Traditionally, POP plans have been used in combination with employer-sponsored group health insurance plans.