What is Section 125 on a W-2 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.
What does section 125 mean on a paycheck?
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 compliance document?
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.
What are the requirements for a Section 125 plan?
125 DOCUMENTS. Employers must have written plan documents, to include a master plan document, an adoption agreement (which can be included in the master plan document), and a summary plan description that must be provided to all eligible employees within 90 days of their becoming covered by the plan.
Is Section 125 exempt from FICA?
Generally, qualified benefits under a cafeteria plan are not subject to FICA, FUTA, Medicare tax, or income tax withholding. If an employee elects to receive cash instead of any qualified benefit, it is treated as wages subject to all employment taxes.
Is sec125 and S125 the same?
If you’re enrolled in your employer’s Section 125 benefit plan, your premiums are deducted from your wages on a pretax basis, which gives you a tax break. If your employer has enrolled you in a S125 plan, they may notate this on box 14 of your W-2 using the term “S125.”
Are health insurance premiums pre-tax?
Medical insurance premiums are deducted from your pre-tax pay. This means that you are paying for your medical insurance before any of the federal, state, and other taxes are deducted. To itemize your medical expenses you will need to complete Form 1040, Schedule A: Itemized Deductions.
Can owners participate in a Section 125 plan?
In general, most business owners are ineligible for participation in a Section 125 cafeteria plan (e.g., FSA, Commuter benefits) because these owners are considered self-employed individuals, rather than employees of the company. Only employees can participate in cafeteria plans.
Are cafeteria plans the same as HSA?
A cafeteria plan is an employee benefits plan administered under Section 125 of the federal tax code that lets employees pay certain expenses with pretax income. Funding a health savings account, commonly referred to as an HSA, may be an option under a cafeteria plan.
What is the difference between a cafeteria plan and a Section 125 plan?
A cafeteria plan, also known as a section 125 plan, is a written plan that offers employees a choice between receiving their compensation in cash or as part of an employee benefit. Employer contributions toward an employee’s cafeteria-plan benefits are not taxed.
Is health insurance subject to Suta?
Contributions made to a shareholder-employee’s health benefits plan are subject to state and federal income tax withholding. However, these contributions are not subject to Social Security and Medicare (FICA) taxes or unemployment tax.
Are employee health insurance premiums subject to Medicare tax?
Health Plans If an employer pays the cost of an accident or health insurance plan for his/her employees (including an employee’s spouse and dependents), then the employer’s payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding.
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