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Benefits provided by plans covered under section 125 include adoption and dependent care assistance, health insurance, 401k and group term life insurance policies. They are called cafeteria plans because employees are given a list of benefits to choose from, similar to a cafeteria-style menu.
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.
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 ...
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.
A Section 125 plan typically lets employees use pretax money to pay for health insurance premiums (medical, dental, vision). Other options include retirement deposits, supplemental life or disability insurance, Health Savings Accounts, and various medical or dependent care expenses.
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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.
Employers are generally eligible to establish a simple cafeteria plan if they employ an average of 100 or fewer employees during either of the two preceding years.
A Section 125 plan typically lets employees use pretax money to pay for health insurance premiums (medical, dental, vision). Other options include retirement deposits, supplemental life or disability insurance, Health Savings Accounts, and various medical or dependent care expenses.
To start a section 125 benefits plan, employers have to draft a document that outlines the benefits offered, contribution limits, participation rules and other information required by the IRS.
Cafeteria Plans are an employer-sponsored benefit that lets employees pay certain qualified medical expenses \u2013 such as health insurance premiums for medical, dental, and vision coverage \u2013 on a pre-tax basis. They are sometimes called Section 125 Cafeteria Plans.

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