Is a Section 125 plan worth it?

Section 125 plans offer employees significant tax savings and could be an appealing part of any benefits package. Offering an appealing compensation plan is a great way to attract and retain employees, but a quality compensation plan includes not just a high salary but also an attractive benefits package.

What is a Section 125 flexible spending account?

Flexible Spending Accounts (FSAs), governed by Internal Revenue Code (IRC) Section 125, allow you to have pre-tax payroll deductions for certain medical and dependent care expenses. Section 125 also permits your insurance premiums to be taken on a pre-tax basis.

Can owners participate in a Section 125 plan?

In general, most business owners are ineligible for participation in a Section 125 cafeteria plan (e.g., FSA, Commuter benefits) because these owners are considered self-employed individuals, rather than employees of the company. Only employees can participate in cafeteria plans.

Is flexible spending account pre-tax?

A Flexible Spending Account, or FSA, allows you to set aside pre-tax money. You pay less taxes and therefore save money. Then you get the money back when you submit claims for eligible health care and day care expenses.

Why do I need a Section 125 plan?

Income tax savings for the employee: A Sec. 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.

Who is not eligible to participate in a Section 125 plan?

However, the following individuals are NOT eligible to participate in Section 125 Cafeteria Plan, Flexible Spending Account (FSA), or Premium Only Plan (POP), or any of its qualified benefits: More than 2% shareholder of an S-corporation, or any of its family members, Sole proprietor, Partner in a partnership, or.

Does the 125 plan affect my tax return?

Affect on Tax Return. Because your contribution to your 125 plan account is made with pre-tax dollars, you will pay less income tax. The W-2 Form you will receive from your employer will take into account the salary reduction that you made. For instance, if your gross salary is $25,000 per year and you contributed $2,000 to your 125 plan, the W

How to set up Section 125 plan?

Choose Lists > Payroll Item List.

Select Payroll Item > New.

Select EZ Setup > Next.

Select Insurance Benefits > Next.

Select the insurance item you want to setup on the list.

Follow the onscreen setup instructions,which prompt you to answer a series of questions based on the item type to create employee and/or company payroll items.

What is Section 125 Flexible Benefits Plan?

What is a flexible-benefits plan? A flexible- benefits plan, also called a full-flex plan, is a type of cafeteria plan benefit under Section 125 of the Internal Revenue Code that offers employees a choice between receiving their compensation as cash or as nontaxable benefits such as life and health insurance, retirement plans and child care.

How much can employers save under a section 125 plan?

Employers can save an additional 7.65% on their share of payroll taxes. A wide variety of medical and child care expenses are eligible for reimbursement under a Section 125 plan. As for