What does Cafe 125 mean on a W-2 form?

Listing the FSA contributions separately helps you understand the portion of your earnings that has been allocated towards medical expenses or dependent care costs. Under a cafe 125 plan, an employee elects to have a specific amount deducted from their paycheck before taxes are applied. This amount is then allocated to various benefits offered by the employer, such as an FSA. With traditional company-sponsored healthcare insurance, the employer generally pays part of each employee’s premiums. If an employee opts out of the plan, he or she does not receive compensation for the amount their premiums would have cost.

• A cafeteria plan is a pretax benefits plan that meets the specific requirements of section 125 of the Internal Revenue Code of the IRS.
• ADP does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog.
• However, these benefits, except the forfeited ones from a cafeteria plan, are still subject to social security, Medicare and railroad retirement taxes.
• These returns cover a period from January 1, 1988 through December 30, 2024.
• Your contributions come out of your paycheck before taxes are calculated, leading to significant savings.
• Therefore, there is not an additional deduction that you can take for those amounts.

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• It can help you manage your healthcare expenses more effectively and potentially save you money in the process.
• In addition to being tax advantageous, cafeteria plans can help employers attract and retain talent.
• Under a cafe 125 plan, an employee elects to have a specific amount deducted from their paycheck before taxes are applied.
• An FSA allows an employee to pay for certain medical expenses on a pretax basis.
• Because the money used for this plan is not being taxed (pre-tax), then no deduction is allowed for the expense.
• 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.

Employer contributions toward an employee’s cafeteria-plan benefits are not taxed. A Section 125 Plan is a written plan that gives employees the option to choose between cash and qualifying benefits that are pre-taxed. The employee usually pays less in federal income and/or FICA taxes because the employee’s contribution is withheld before taxes. Other benefits can be offered by your employer but not as part of the Section 125 cafeteria plan. If this isn’t the case, these contributions are subject to taxes and must be reported accordingly on the W-2 form.

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Only specific types of coverage must be reported; others aren’t required or are optional. For example, your employer must report the cost of major medical, but your contributions to a health flexible spending account aren’t reportable. The data in Box 12 is for informational purposes only, so employees know the cost of their health coverage. Your employer may also use Box 12 to report certain retirement plan contributions and nontaxable moving expenses, under the required codes.

Understanding Non-Taxable Meals and Beverages

First, group term-life insurance coverage in excess of ​$50,000​ is subject to payroll taxes. In addition, all adoption assistance benefits are also subject to payroll taxes. The primary advantage to employees is the range of healthcare options that allows them to use Section 125 money to fit their needs. Typically, they can use the pre-tax money to pay for health insurance premiums, retirement deposits, or other benefit options. If they don’t want any of the offered benefits, they may be able to choose alternatives; options may include cash or other taxable benefits, like supplemental life or disability insurance.

A cafeteria plan is a pretax benefits plan that meets the specific requirements of section 125 of the Internal Revenue Code adp less other cafe 125 of the IRS. For instance, your health insurance premiums are free from federal income, Social Security and Medicare taxes. However, life insurance premiums of more than $50,000 are subject to Social Security and Medicare taxes. Boxes 1, 3 and 5 represent your federal, Social Security and Medicare taxable wages, respectively. The premiums paid under a cafeteria plan are not included in these taxable wages if they are not subject to these taxes.

Who Cannot Participate In A Section 125 Plan?

They are not taxed and are not included in your W-2 Box 1 wages so you can not deduct them as medical expenses. Cafeteria plans also can build employees’ loyalty within the company by saving them money and offering benefits they could not otherwise afford. They are not taxed and are not included in your W-2 Box 1 wages so you can not deduct them as medical expenses. Income allotted to cafeteria plans is taken directly from an employee’s paycheck before taxes are taken out.

With a Section 125 Cafeteria Plan, however, the employer may choose in this situation to offer the cost of the benefits as cash. The employee may use the money towards another benefit; though, if the employee receives cash, that money is taxed. With a POP, employers do not have to pay FICA/FUTA taxes (~7.65%) on dollars that employees use toward the cost of their individual health insurance premiums. Zenefits is a benefits insurance provider that provides HRIS software and a full range of section 125-compliant health insurance like medical coverage, HSAs and FSAs.

Cafeteria plans are particularly good for participants who have regular expenses related to medical issues and child care. Typically, any funds remaining in your FSA at the end of the year will be forfeited, unless your employer offers either a grace period or a carryover provision. It’s important to plan your expenses carefully to avoid losing any unused funds. Because the money used for this plan is not being taxed (pre-tax), then no deduction is allowed for the expense. Your employee handbook may contain valuable information regarding the employer’s policies on meal and beverage reimbursements. Reviewing this document can help you understand the circumstances under which these reimbursements are provided and how they are treated on your W2.

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