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Section 125 cafeteria plans
A Cafeteria plans is a tax-free benefits program made possible
through section 125 of the Internal Revenue Code. They
allow both employers and employees to save taxes on the
money they pay toward their group-sponsored health, dental,
and group term life plan premiums, voluntary benefits,
as well as on certain dependent care expenses. It allows
more take home pay for employees who participate in the
plan.
What is a section cafeteria 125 plan?
The term section 125 refers to the section of the Internal
Revenue Code that specifically pertains to cafeteria
plans. A section 125 cafeteria plan is a written benefit
plan maintained by a company for the benefit of its employees.
The plan must meet all of the legal requirements of section
125.
Premium Only Plan (POP)
This plan allows employees to make their contributions
to group health and group term life insurance with pre-tax
dollars. A Premium Only Plan does not necessarily create
new benefits (though it makes benefits more affordable
to employees). The employer is simply offering a way to
obtain favorable tax treatment on benefits already offered.
Here's how it works:
• Employees' premium contributions are automatically
deducted from their salaries before any taxes are taken out.
• Taxable income is reduced by the amount contributed,
so employees pay less in taxes and have more take-home pay.
For more information click IRS web link below.
http://www.irs.gov/govt/fslg/article/0,,id=112720,00.html
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