What qualifies as 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. Typically, they can use the pre-tax money to pay for health insurance premiums, retirement deposits, or other benefit options.
What are Section 125 qualifying events?
SECTION 125 QUALIFYING EVENT
| Event | Coverage Affected |
|---|---|
| Significant CostChanges2 | • Major Medical • Dental • Vision • Dependent Care |
| Significant Coverage Curtailment | • Major Medical • Dental • Vision • Dependent Care |
| Addition or Significant Improvementof Benefit Options | • Major Medical • Dental • Vision • Dependent Care |
What can I use my cafeteria plan for?
What is a cafeteria plan?
- Accident and health benefits (but not Archer medical savings accounts or long-term care insurance)
- Adoption assistance.
- Dependent care assistance.
- Group-term life insurance coverage.
- Health savings accounts, including distributions to pay long-term care services.
Which of the following benefits may be offered under a 125 cafeteria plan?
Benefits that are typically offered under a Section 125 plan include: • Health; • Dental; • Vision; • Accidental death and dismemberment; • Short- and long-term disability; • Group-term life insurance (up to $50,000 in coverage); • Health FSAs (to cover out-of-pocket medical expenses not covered by insurance); • …
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).
Is a Section 125 plan required by law?
Income tax savings for the employee: A Sec. 125 plan is required for employers who want to allow employees to choose the qualified benefits they want and avoid paying income taxes on the amount of wages they contribute to obtain those benefits.
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 401k included in a cafeteria plan?
A 401(k) cafeteria plan allows employees who are participating in their employer’s 401(k) plan to also choose additional types of benefits from a smorgasbord of options on a pretax basis. These benefits can include: Other types of retirement savings accounts such as a 401(k) or profit-sharing plan. …
Who Cannot participate in a cafeteria plan?
Unlike the other business types, spouses, children, parents, and grandparents of more-than-2% shareholders may NOT participate in the cafeteria plan. Like partners in a partnership, more-than-2% shareholders may be able to make a tax deduction outside the cafeteria plan for medical and long-term care expenses.
Who is not eligible for cafeteria plan?
Employers can be C corporations, S corporations, LLCs, partnerships, governmental entities or sole proprietorships. However, nonemployees cannot participate in a cafeteria plan; this exclusion applies to partners in a partnership, members of an LLC and individuals who own more than 2 percent of an S corporation.
Is Section 125 nondiscrimination testing required?
The IRS requires non-discrimination testing for employers who offer plans governed by Section 125, which includes a flexible spending account (FSA). And though they aren’t part of Section 125, testing is also required for health reimbursement arrangements (HRAs) and self-insured medical plans (SIMPs).
What is the difference between Section 125 and cafeteria plan?
What expenses are allowed in a section 125 cafeteria plan?
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 where applicable.
What are the requirements for a 125 cafeteria plan?
Section 125 Cafeteria Plan Requirements. To qualify as a Cafeteria Plan, the plan must include: At least one taxable benefit option (considered part of the employee’s salary), and. At least one qualified pre-tax benefit.
What are the benefits of Section 125 cafeteria plan?
A section 125 or “cafeteria” plan allows employees to withhold a portion of their pre-tax salary to cover certain medical or child-care expenses. Because these benefits are free from federal and state income taxes, an employee’s taxable income is reduced, which increases the percentage of their take-home pay.
What are the rules for Section 125?
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. Rules allow for several types of cafeteria plans.