Solved: Can I deduct the money listed on my W2 as less other cafe 125?

Together with group health insurance, a POP reduces taxable income and results in a reduction in the amount used to determine your company’s FICA and FUTA payroll taxes and any applicable state taxes. An FSA allows employees to pay for qualified out-of-pocket medical expenses on a pre-tax basis. If the FSA is the only benefit provided, employees may use the account to cover health insurance premiums.

For more information on ordering, including a fax option, go to the Core125 package page. But if you select the benefit, your company doesn’t include the benefit as part of your taxable income. You can use your FSA funds to pay for eligible medical expenses such as doctor visits, prescription medications, medical equipment, and certain dental or vision expenses. However, each employer’s FSA plan may have specific guidelines outlining what expenses are eligible.

Types of section 125 plans

This may sound like it has something to do with where you go on your lunch break, but there is a more reasonable explanation. “Cafe 125” stands for IRS regulation code section 125 regarding tax-free “cafeteria” employee benefit plans. In conclusion, when you see “Less other cafe 125” on your W2 form, it simply indicates the amount you have contributed to an FSA through a cafeteria 125 plan.

This may happen, for instance, if she stopped her medical coverage, but you did not stop her deductions in the payroll system. Cafe 125 refers to IRS regulation code section 125, which governs cafeteria employee benefit plans. Think of it like building your meal at a cafeteria, but instead of food, you’re selecting from a buffet of benefits like health insurance, life insurance and dependent care assistance. You pay for these benefits with pre-tax dollars, potentially saving you a bundle on taxes. For example, education assistance and certain transportation benefits aren’t included. All qualifying cafeteria plan benefits are exempt from income taxes, but not all of them are exempt from payroll taxes – the Social Security tax and the Medicare tax.

• Traditionally, POP plans have been used in combination with employer-sponsored group health insurance plans.
• The employee may use the money towards another benefit; though, if the employee receives cash, that money is taxed.
• Zacks Rank stock-rating system returns are computed monthly based on the beginning of the month and end of the month Zacks Rank stock prices plus any dividends received during that particular month.
• Just like charitable donations need to be made to qualified organizations, so do you have limitations within cafeteria plan rules in order to get tax exemptions.
• The following TurboTax Online offers may be available for tax year 2024.
• Because you have reduced payroll taxes, your cost to set up the plan is offset.

Understanding Non-Taxable Meals and Beverages

• When you receive your W2 form, it provides valuable information regarding your earnings and taxes paid during the previous year.
• On Aug. 6, 2007, the IRS issued proposed regulations governing Section 125 plans Ñ aka cafeteria plans Ñ reflecting several changes occurring since 1997, as well as incorporating new guidance.
• You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer.
• The monthly returns are then compounded to arrive at the annual return.
• This deduction represents non-taxable meals and beverages provided by your employer for their convenience.

IRS code Section 125, allows employers to adopt a plan in which employees, through salary reduction, can pay for eligible benefits and medical or dependent care expenses on a pre-taxed basis. It may, however, choose to report certain benefits on your W-2 and code them as Café 125. If you offer your employees pretax medical insurance, you do so through a Section 125, or cafeteria, plan, which exempts their premiums from specific taxes. For some reason, you may need to refund an employee’s medical contributions.

Just like other employee benefits areas, there are consequences if the employer does not comply with the regulations. At that point, all employee pre-tax withholdings from the plan may revert to gross income to the employee. A section 125 plan allows employers to offer employees, their spouses and dependents certain benefits on a pretax basis, thereby lowering the employee’s taxable income. It essentially puts more money back in the employee’s pocket, which can help businesses attract and retain talent. A cafeteria plan, also known adp less other cafe 125 as a section 125 plan, is a written plan that offers employees a choice between receiving their compensation in cash or as part of an employee benefit.

What does less Other Cafe 125 mean on my taxes?

It also offers HR support and can manage payroll if you prefer an all-in-one solution. At Paychex, we handle much of the work required to start and manage section 125 plans so you can enjoy the benefits. Some smaller employers use cash bonuses and incentives to attract and retain employees when a cafeteria plan isn’t in the budget. Some small businesses believe that the ACA replaced how employers offer pretax health insurance benefits, but that’s not true. In addition, depending on the size of your company and where you do business, there may be state-specific requirements affecting your cafeteria plans.

What benefits are not included in section 125?

This is why we recommend working with a licensed benefits provider, be it a payroll provider like Gusto, a PEO like ADP Total Source, or an insurance company. Under a cafeteria, or Section 125, plan, you pay for your employer-sponsored benefits with pretax money. Your employer deducts your payments from your wages before withholding certain taxes. Your employer doesn’t include your pretax payments in your taxable wages on your annual W-2. Effectively, the employee pays for out-of-pocket expenses that aren’t covered by insurance with dollars set aside in an account.

Presenta tus impuestos más rápida y fácilmente con la app gratuita de TurboTax

An employer’s health insurance plan must meet the criteria of Section 125 of the IRS code for pretax premium eligibility. Section 125 plans are better known as cafeteria plans, since they offer employees the ability to choose just some of their benefits. A section 125 or “cafeteria” plan allows employees to withhold a portion of their pre-tax salary to cover certain medical or child-care expenses. Because these benefits are free from federal and state income taxes, an employee’s taxable income is reduced, which increases the percentage of their take-home pay.

These pre-tax contributions can save the employee hundreds—possibly even thousands—of dollars in income taxes and Social Security and Medicare taxes over the course of a year. Employees also have the advantage of choosing which programs to enroll in and which to decline to get the specific benefits that are most important to them. Income allotted to cafeteria plans is taken directly from an employee’s paycheck before taxes are taken out. Any plan that qualifies under IRC section 125 and gives employees the option to choose from at least one taxable benefit and one qualified benefit may be considered a cafeteria plan. POP, or premium only plans, meet this criteria, which means they are a type of cafeteria plan – one that allows employees to pay only their share of insurance premiums via pretax payroll deductions. It can help you manage your healthcare expenses more effectively and potentially save you money in the process.

TURBOTAX ONLINE/MOBILE OFFERS & PRICING

These taxes and compliance elements can be taken care of via payroll software if you feel able to manage the benefits offerings yourself. An FSA allows an employee to pay for certain medical expenses on a pretax basis. Traditionally, POP plans have been used in combination with employer-sponsored group health insurance plans. However, employees can also use POP plans to pay individual health insurance premiums with tax-free dollars.