Employer Savings
Underrated and Underused
Section 125 Cafeteria Plans, also known as “cafeteria” plans, explore why they are valuable for both employees and employers:
- Tax Advantages:
- Benefits provided through cafeteria plans are exempt from federal and state income taxes. Puerto Rico Only Fedetal tax break
- Additionally, these pre-tax benefits are not subject to federal social security withholding taxes (FICA).
- Employers benefit by avoiding FICA and workers’ compensation premiums on these dollars.
- Types of Section 125 Plans:
- Premium Only Plans (POP): Employees use pre-tax contributions solely for group health insurance premiums.
- Simple Cafeteria Plans: Small employers (with 100 or fewer employees) receive safe harbor from non-discrimination tests by making consistent benefit contributions.
- Full Flex Plans: Employees purchase benefits using employer contributions, and any remaining cost can be covered via pre-tax payroll deductions.
- Qualified Benefits Under Section 125:
- Group health benefits
- Accident and disability coverage
- Adoption assistance
- Dependent care assistance
- Group-term life insurance coverage
- Health savings accounts (HSAs)
- Imdemnisations insurances
- Many more…
- Why Underused?:
- Benefit administration companies may not prioritize cafeteria plans due to low profits.
- Limited advertising contributes to many people being unaware of this valuable option.
