What are Section 125 Plans?

Section 125 Plans are also known as cafeteria plans, flexible benefit plans or mini-flex plans. Section125 of the Internal Revenue Tax Code defines these plans with strict guidelines.

These plans were originally added to the tax code in 1978, but didn’t become popular until 1986 when additional tax laws were added that gave employees’ more tax advantages.

They were created as tax savings plans wherein participants could save tax dollars. With these flexible benefit plans, group health plan premiums and eligible healthcare and dependent care expenses are paid for with “untaxed” dollars.

Deductions are taken from the participant’s paycheck and placed into a separate bank account as contributions to the participant’s flexible benefit plan. The participant submits legitimate claims to whoever is administrating the account and they are reimbursed for expenses.

The key is that the money deducted from the participant’s paycheck is never taxed. Thus, the participant’s net take home pay is higher because they don’t pay taxes on these funds.  They get the funds via reimbursement for legitimate expenses and don’t pay taxes on those funds.

Technorati Tags: cafeteria plan, Cafeteria Plan Administration, cafeteria plans, dependent care account, dependent care accounts, dependent care flexible spending account, dependent care flexible spending accounts, dependent care reimbursement account, dependent care reimbursement accounts, dependent care reimbursement plan, dependent care reimbursement plans, dependent care spending account, dependent care spending accounts, flex plan, flex plans, flexible benefit plan, Flexible Benefit Plans, flexible health spending account, flexible health spending accounts, health care spending account, health care spending accounts, medical care account, medical care accounts, medical care reimbursement account, medical care reimbursement accounts, medical care reimbursement plan, medical care reimbursement plans, premium only plan, premium only plans, Section 125 Plan Administration, tax-free spending account, tax-free spending accounts