A Section 125 Plan is a written plan that gives employees the option to choose between cash and qualifying benefits that are pre-taxed.
Section 125 is part of the IRS Code created to make benefit programs more affordable for employees. Under this code, employees are allowed to convert a taxable cash benefit (salary) into non-taxable benefits. The employee usually pays less in federal income and/or FICA taxes because the employee’s contribution is withheld before taxes.
Employers cannot include benefits that defer employees’ pay. Benefits allowed and not allowed can be found in IRS Publication 15-B. For a full list of the benefits you can include in your Section 125 plan, refer to IRS Publication 15-B.
We’ve also created this helpful article on pre-tax deductions. You can explore it here.
Paycor offers human capital management software to help make benefits administration easier. Learn more about how Paycor offers human capital management software to help https://www.paycor.com/hcm-software/benefits-software/.
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