What does less cafe 125 mean?

Asked by: Dr. Alanis Rice II  |  Last update: January 12, 2024
Score: 4.5/5 (51 votes)

You might be confused to see "Cafe 125" listed on your W-2 form. This may sound like it has something to do with where you go on your lunch break, but there is a more reasonable explanation. "Cafe 125" stands for IRS regulation code section 125 regarding tax-free "cafeteria" employee benefit plans.

What does cafeteria 125 amounts mean?

A Section 125 premium-only plan (POP) is a cafeteria plan that allows employees to pay their health insurance premiums with tax-free dollars. As the name implies, these premiums are the only expense funds can cover. The premiums can be for employer-sponsored insurance plans or individual health policies.

What does Cafe mean on my paycheck?

A cafeteria plan gives employees a choice between at least one taxable benefit (often cash) and at least one qualified benefit—that is, a benefit whose cost to the employee is excludable from their taxable gross income. The employee's share of the cost is made through pretax payroll deductions.

What does 125 mean in box 14?

125 is the grand total of all your pre-tax deductions EXCEPT annuities. 2022. W-2 FAQs. Commonly asked questions about information on the W-2. This document has a link on the portal home page and also on the district website—Business Services.

What is Section 125 cafeteria plan IRS?

A cafeteria plan is defined in § 125(d)(1) as a written plan maintained by an employer under which all participants are employees, and the participants may choose among two or more benefits consisting of cash and qualified benefits.

How Does a Section 125 Plan Work?

19 related questions found

What is Section 125 of the tax code?

A Section 125 plan, or a cafeteria plan, allows employees to pay for certain benefits on a pre-tax basis. Specifically, employers use these plans to provide their employees with a choice between cash and certain qualified benefits without adverse tax consequences.

What are the benefits of Section 125 cafeteria plan?

What are section 125 plan deductions? Contributions to cafeteria plans are withheld on a pretax basis, thereby lowering taxable income, which means employees pay less in federal income tax and Medicare and Social Security taxes.

What is deemed 125 compensation?

Deemed 125 Compensation means an amount that is excludable from the gross income of the Employee under Code §106 that is not available to the Employee in cash in lieu of group health coverage under a Code §125 arrangement solely because that Employee is not able to certify that he or she has other health coverage.

What is Section 125 cash in lieu of benefits?

Section 125 of the Internal Revenue Code

Cash payments made in lieu of benefits are taxable, so they cannot be the only option offered under the cafeteria plan. (Employees must be allowed to choose between taxable and nontaxable benefits.)

What is an example of a Section 125 cafeteria plan?

Example #1

The plan allows employees to allocate $5,000 of their salary towards different benefits options, such as health insurance and a retirement plan. HSA Cafeteria Plan: The contribution will be pre-taxed if the employee elects to contribute $2,500 towards a Health Savings Account (HSA) through the plan.

Is Cafe 125 same as an HSA?

An HSA can be offered as part of a Section 125 Cafeteria Plan to allow employees to make pre-tax payroll contributions to their HSAs. Once an employer allows employees to make pre-tax contributions, the Section 125 non-discrimination testing rules apply instead of the HSA comparability rules.

What is an example of a Section 125 plan?

Common examples of Section 125 Cafeteria Plans include:

Contributions to a Health Savings Account (HSA) Health Flexible Spending Accounts (FSAs) Premium Only Plans (POPs) Dependent Care Flexible Spending Accounts.

Can you ask for money instead of health insurance?

​​​​If you have qualifying group health and/or dental insurance through a spouse, domestic partner, parent, or another source, you have the option to receive cash in lieu of your state-sponsored health and/or dental benefits.

What is Cafe 125 on W-2?

You might be confused to see "Cafe 125" listed on your W-2 form. This may sound like it has something to do with where you go on your lunch break, but there is a more reasonable explanation. "Cafe 125" stands for IRS regulation code section 125 regarding tax-free "cafeteria" employee benefit plans. Included plans.

What taxes are reduced by Section 125?

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 ...

How do cafeteria plans work?

Cafeteria plans are flexible benefits plans that allow employees to choose from a variety of benefits. Contributions to a cafeteria plan are made pre-tax, lowering your total taxable income and reducing income, Medicare, and Social security taxes.

What is the cafeteria plan on W-2?

Cafeteria, or Section 125 plans include employer-sponsored benefits that are exempt from federal and typically, state taxes. Your employees pay for these benefits with pre-tax money, which you don't include in their taxable wages on their annual W-2s.

What is a cafeteria plan for health insurance?

It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.

How do employers benefit from having cafeteria plans?

Reduced payroll taxes.

Since the taxable portion of employee pay is reduced by their cafeteria plan contributions, the employer's Social Security, Medicare, Federal unemployment, State unemployment, and Workers' Compensation costs are also reduced.

Who needs a Section 125 plan?

IRS Requirement for pre-taxed employee benefits. If you are an employer wanting to allow your employees to pay group health and other insurance premiums with pre-tax salary deductions, the answer is yes, you need a Section 125 plan document.

What is Section 125 cafeteria plan Limits 2023?

A Section 125 plan Health Flexible Spending Account (FSA) allows employees to use up to $2,850 (2022 plan year) and $3,050 (2023 plan year) in pre-tax dollars to pay for eligible out-of-pocket medical, dental and vision care expenses not covered by other insurance.

What is the penalty for Section 125?

- A penalty of $110/day for failure to distribute a Summary of Plan Description or SPD to participants within 30 days of request; - A Department of Labor (DOL) penalty of $100/day, up to a maximum of $1,000 if an SPD is requested and is not provided within 30 days.

Is Section 125 exempt from federal income tax?

Because Section 125 Cafeteria Plan benefits are exempt from federal and state income tax, an employee's taxable income is reduced which increases take-home pay.

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

Typically a plan document and necessary forms will cost anywhere from $100-$600 through an attorney or tax advisor. Many payroll providers charge set-up fees as much as $600 but once you have the document you will be required to update as new legislation is available.

Should I take a higher paying job with less benefits?

In most cases, benefits are worth more than the extra pay you might receive, so a lower-paying job that offers great benefits is worth considering. A good benefit package will include medical and dental, matching retirement contributions, and tuition reimbursement, among other perks which is a huge plus. 2.