Section 125 “Café Plans”

Section 125 is a section of the Internal Revenue Code that allows employees to earmark pre-tax dollars toward the payment of Insurance Premiums, Medical Care, and Dependent Care expenses. These funds, if used in such a way, are not subject to Social Security, Federal, or most State taxes. This allows each employee to increase their net income by using dollars before they are subject to taxation, often referred to as a cafeteria plan, flex plan, or a Section 125 plan, a Flexible Savings Account allows you to set aside a certain amount of your paycheck into an account before paying income taxes. Throughout the year, the employee has access to this account for reimbursement of expenses, apart from insurance, that the employee normally pays for. This plan can also reduce the employer’s payroll tax costs, since those dollars are not subject to the employer Social Security contribution. This in turn can also result in reduced Federal and/or State Unemployment Tax contributions, as well as Workers’ Compensation Premiums. ePay offers Section 125 plan from many of the leading providers, including Colonial Life and Aflac.

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