Cafeteria Plan

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Cafeteria Plan

1. An employee benefit in which an employee may contribute so much of his/her pretax income into a special account that may be used for a broad range of purposes. One may use the funds in a cafeteria plan for matters such as medical expenses, life insurance premiums, or other things. This allows the employee to structure his/her employee benefits in a way that best suits their needs for a given period of time. For example, a young, healthy employee may have the ability to choose a less expensive, less comprehensive insurance plan than he/she might otherwise receive from an employer. It is formally called a Section 125 plan. See also: Flexible Spending Account.

2. An employee benefit plan in which employees may choose from multiple options. For example, an employee may choose among a health insurance plan with no deductible, one with a $500 deductible, or one with a $1,000 deductible.

Cafeteria plan.

Some employers offer cafeteria plans, more formally known as flexible spending plans, which give you the option of participating in a range of tax-saving benefit programs.

If you enroll in the plan, you choose the percentage of your pretax income to be withheld from your paycheck, up to the limit the plan allows. You allocate your money to the parts of the plan you want to participate in.

For example, you can set aside money to pay for medical expenses that aren't covered by insurance, for child care, or for additional life insurance coverage. As you incur these kinds of expenses, you are reimbursed from the amount you have put into the plan.

Since you owe no income tax on the money you contribute, you actually have more cash available for these expenses than if you were spending after-tax dollars.

However, you must estimate the amount you're going to contribute before the tax year begins, and you forfeit any money you've set aside but don't spend. For example, if you've set aside $1,500 for medical expenses but spend only $1,400, you lose the $100.

In some plans the deadline for spending the money in your flexible spending account is December 31. Other plans provide up to a three-month extension.

Cafeteria Plan

A plan wherein an employer offers a choice of salary or specified nontaxable fringe benefits from which participating employees may select. The plan may be funded with employer contributions, employee contributions (usually through salary reduction agreements) or a combination of both. Also called a section 125 plan.
References in periodicals archive ?
Proposal is to have the opportunity to offer Section 125, Flexible Spending
Therefore, at least for the purpose of claiming maintenance under Section 125 CrPC such a woman is to be treated as the legally wedded wife," the court added.
An FIR has been registered against Patil under Sections 153-A of the Indian Penal Code (IPC) and Section 125 of People's Representation Act.
For convicts convicted by the Syariah courts, the department is bound by section 125 and section 126 of the states' Syariah criminal procedure enactments which allows the Prison Department to perform Syariah whipping punishments on male and female convicts regardless of their age subject to declaration of medical fitness to undergo such punishments by a certified medical doctor.
What is much less common, and more innovative, is to use section 125 plans to pay for individual insurance, pretax and through payroll deduction, when the employer contributes nothing toward the premium.
Authorized by Section 125 of the Internal Revenue Code, cafeteria plans permit employers to offer voluntary benefits on a pre-tax basis.
Section 125 of the CrPc provides for giving maintenance to a neglected wife, child, father or mother unable to support themselves.
Department of Treasury and the Internal Revenue Service issued proposed regulations to provide guidance under section 125 of the Internal Revenue Code relating to cafeteria plans.
I urge participants to take an active roll in understanding their insurance plan and the rules of section 125 and section 105.
In another action, the AICPA commended the IRS and Treasury for re-proposing regulations under section 125 relating to cafeteria plans.
The only catch is, to get in on the pretax payment plans, employers will have to use or set up a Section 125 system to allow purchase of insurance through payroll deductions.
Employers should be encouraged to implement a Section 125 plan (also known as a cafeteria plan or salary reduction plan) to obtain these tax savings.