Section 125 Cafeteria Plans

Section 125 Cafeteria Plans and other tax advantaged employee benefits offer employees the option to pay for insurance benefits and child or elder care with ‘before tax’ dollars. Money for these costs is deducted from earnings before withholding taxes are calculated. When the employee must pay annual income taxes, these withholdings are not considered taxable income. These plans are administered by a third party who specializes in these programs. The cost of administration is usually more than offset by employer savings on FICA taxes that employers don’t have to pay on the money withheld from wages. In some cases, administration fees are waived completely.