Post by prantogomes141 on Feb 13, 2024 22:58:54 GMT -5
Offering a great benefits package for employees helps businesses retain talent. But how can business owners save money when employer health insurance costs are soaring? One option that employers often overlook is a Section 125 plan (sometimes known as a “cafeteria plan”). Before you put together your benefits package, you should understand the definition of a Section 125 plan, when it can benefit your company and how you can start one. What is a Section 125 plan (cafeteria plan)? A Section 125 plan allows employees to convert their taxable benefits, such as their salaries, into nontaxable benefits. Employees enrolled in Section 125 plans can reserve part of their pretax cash earnings to cover the costs of qualified benefits.
A common example of a Section 125 plan is a flexible spending account (FSA), in which employees set aside pretax dollars from their paychecks to be used for qualifying medical expenses. The benefit of setting this money aside is that employees can save up to 30 percent Algeria Telemarketing Data on local, state and federal taxes. As with most employee benefit plans, there is no obligation to participate in a Section 125 plan. Some employees may forego Section 125 plans in favor of standard cash wages. However, for many employees, setting aside money before taxes are taken out is preferable. How does a Section 125 plan work? In a Section 125 plan, an employer sets aside a portion of an employee’s pretax wages to cover the costs of the plan’s qualified benefits.
The employee never receives this money as part of their standard wages, so federal income tax is not taken on these earnings. Employers also benefit from setting aside wages for Section 125 use, since employer payroll taxes collected through Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) are not taken on these funds. Although taxes are not levied on these wages, you still must report them on your employees’ W-2 forms. For example, if you set aside $1,000 of an employee’s salary toward a Section 125 benefit during a plan year, you must report that amount on Box 10 of the employee’s Form W-2. No matter the benefits you offer, you are responsible for managing the Section 125 plan. A professional employer organization (PEO) can help you perform these human resources (HR)-related tasks and administer benefits plans.
A common example of a Section 125 plan is a flexible spending account (FSA), in which employees set aside pretax dollars from their paychecks to be used for qualifying medical expenses. The benefit of setting this money aside is that employees can save up to 30 percent Algeria Telemarketing Data on local, state and federal taxes. As with most employee benefit plans, there is no obligation to participate in a Section 125 plan. Some employees may forego Section 125 plans in favor of standard cash wages. However, for many employees, setting aside money before taxes are taken out is preferable. How does a Section 125 plan work? In a Section 125 plan, an employer sets aside a portion of an employee’s pretax wages to cover the costs of the plan’s qualified benefits.
The employee never receives this money as part of their standard wages, so federal income tax is not taken on these earnings. Employers also benefit from setting aside wages for Section 125 use, since employer payroll taxes collected through Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) are not taken on these funds. Although taxes are not levied on these wages, you still must report them on your employees’ W-2 forms. For example, if you set aside $1,000 of an employee’s salary toward a Section 125 benefit during a plan year, you must report that amount on Box 10 of the employee’s Form W-2. No matter the benefits you offer, you are responsible for managing the Section 125 plan. A professional employer organization (PEO) can help you perform these human resources (HR)-related tasks and administer benefits plans.
