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A Section 125 Cafeteria Plan sometimes known as a Flexible
Spending Plan allows employees to pay for certain medical expenses on a pre-tax
basis. By paying for these expenses before being taxed, employees lower their
taxable income, pay less in taxes and increase their take home pay. These
expenses include:
- Employee contributions toward medical-related
insurance premiums.
- Medical-related expenses such as deductibles,
co-insurance, co-pays, or uninsured medical expenses.
- Dependant care expenses.
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Employees can be eligible to participate in a Section 125
plan if they work for an employer who has a plan in place. An employee would
need to qualify by the employer’s requirements to be eligible. Companies from
one employee, one thousand employees, or any size are all eligible for Section
125 plans.
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Benefits of a Section 125 plan are paying for medical
expenses or dependant care with pre-tax or tax-free dollars. Conservatively,
employees can save 15% to 35% on federal income taxes alone that they set aside
in a Section 125 plan. When factoring in city, state, Social Security and
Medicare (FICA) the tax savings are a huge plus for today’s family’s to increase
cash flow and to help defray the high cost of medical insurance and dependant
care.
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For medical expenses, an employer and the Section 125 plan
administrator set a limit that can be contributed to the Section 125 plan
account. There are no set limits as defined by the Internal Revenue Service.
There is however, a cap for dependant care set at $5000 per family per year.
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Currently the Internal Revenue Code supports C
corporations, S corporations, limited liability companies (LLC’s), partnerships,
sole proprietors, professional corporations and non-profits for Section 125
plans.
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An employer saves the matching 7.65% (FICA) on every dollar
that an employee runs through a Section 125 plan. Employers are also able to
realize other benefits such as:
- Cost Control – An employer can control the company’s
share of medical costs, without limiting employee choices.
- Address the needs of a diverse workforce – An employer
can offer individually tailored benefits at little or no additional cost to
the company.
- Recruit and Retain Quality Employees – An employer is
viewed in a positive light by current and prospective employees because of a
benefit package is being provided with the employee’s interests in mind.
- Depending on the particular state, there may also be a
workers compensation tax savings.
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Although
each has their respective benefits depending on the tax situation, the Section
125 Cafeteria plan has no limit on the contributions by either the employee
or employer; covers dependant care; covers transportation costs; and has no
medical insurance restrictions. Money in the Section 125 plan may not be carried
over to the next plan year.
Conversely, the Health Savings Account (HSA) is imposed a
limit on funding, does not cover dependant care or transportation costs and must
be tied to a High Deductible Health Coverage plan. Money in a HSA plan may be
carried over to the next plan year.
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Online calculator – click
here!
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An employee would determine at the beginning of the plan
year what funds they would like to contribute on a pre-tax basis into the
Section 125 account. Once per pay period a portion of that number will be sent
to the Section 125 account. When an employee has a medical or daycare expense,
the employee would simply submit the expense to the Section 125 plan
administrator and would receive their tax-free dollars in the mail or by direct
deposit from the Section 125 plan administrator.
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Click here for a list of
eligible Medical expenses
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- TASC provides a long-term,
value-oriented approach to your Section 125 plan. However it’s measured –
dollars and cents or reduction of late-night headaches and worries – TASC
provides consummate value to our clients and providers.
- A true commitment to low overhead
with a no-nonsense approach helps keep our fees low and makes our service
affordable.
- TASC offers well seasoned
financial professionals with years of experience. We offer an unparalleled
level of customer service. We stand behind our services and make sure
everything is exactly right.
- An endorsement of technology.
From on-line communications to faster processing to the Benefits Debit
MasterCard, we recognize the importance of technology in making many aspects
of business more efficient. We continue to use these methods as a way to
save time, save money, improve processes and generally make things easier.
- A promise. As we head into the
future, you can count on our growth and innovation to raise the level of our
services in every regard. Our goal remains to continually increase customer
satisfaction.
- Audit guarantee.
- Additional highlights –
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