What is the code S125 in box 14?

The main benefit of one of these employer-sponsored cafeteria plans is that it allows employees more control over which benefits will be earmarked with their pre-tax earnings on their W-2 tax forms. Some benefits not generally covered by a cafeteria plan include education assistance, meals, transportation and certain types of medical savings accounts. The majority of IRS Code 125 cafeteria plans are not subject to Medicare taxation, and many employers find these plans beneficial for both their companies and for their employees.

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This section might detail various pre-tax deductions taken from your salary to fund these benefits, indicating the portion of your income that’s exempt from taxes. Contributing to a Cafeteria Plan under Section 125 can significantly affect your taxes. These reductions are reflected in Box 1 of your W-2 form, which reports your taxable wages after pre-tax deductions. By enrolling in a Section 125 Cafeteria Plan, a portion of your salary is set aside for these benefits before taxes are applied.

Contributions to these plans also reduce wages subject to Social Security and Medicare taxes, providing additional savings. Moreover, a lot of employers choose these cafe plans under Internal Revenue Code Section 125 for various reasons. It includes the benefits of health insurance, adoption assistance, dependent care assistance, and even 401k and the group-term life insurance policies.

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. Your employer may break down the amounts you contributed to your Section 125 plan, or it may list the amount as one payment. For example, if you have only a health insurance plan, ​box 14​ may show one amount for medical, dental and vision. This is because all of those deductions are excluded from federal income tax, Social Security tax, and typically state and local income tax. Cafe 125, also known as a “cafeteria” plan, allows employees working for a company, business, or organization to process payments for certain expenses with pre-tax dollars.

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These elections are typically made during open enrollment periods and are irrevocable for the plan year unless you experience a qualifying life event. If you want to adjust your elections for the future, note your concerns and address them during the next open enrollment period. One frequent mistake is overestimating contributions to Flexible Spending Accounts (FSAs). Unlike Health Savings Accounts (HSAs), FSAs typically have a “use it or lose it” policy, meaning any unused funds are forfeited at the end of the plan year. Be realistic about your expected expenses to avoid losing money due to overcontribution. All features, services, support, prices, offers, terms and conditions are subject to change without notice.

“Cafe 125” on your W-2 form encapsulates a spectrum of employee benefit choices. When it comes to these benefits, think of yourself as being at a buffet—you have a variety of options laid out for you. These choices extend beyond just a paycheck; it includes health insurance plans, retirement contributions, and even commuter benefits. Cafeteria 125 contributions can affect unemployment benefits if you lose your job.

Common Mistakes to Avoid with Cafeteria 125 Plans

If you’re an employer, you have an option to break down every contribution you paid to the section 125 plan, or you can have the amount on the form as one payment. Also, if you’re an employee, the cafeteria plan allows you to convert your taxable items into nontaxable ones. In fact, it’s one of the options and the employee benefits you can take advantage of. Usually, what is reported there is your medical insurance premiums that are paid with pre-tax income.

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• With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance.
• It’s important to note that reducing your taxable income through Cafeteria 125 contributions can affect other tax-related items.
• Failing to review your plan details during open enrollment could result in missed opportunities or unintended consequences.
• 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.

Because these deductions are made pre-tax, they reduce the portion of your wages that are subject to federal income tax, Social Security, and Medicare taxes. By contributing to these plans pre-tax, you reduce the amount of your income subject to federal income tax, Social Security, and Medicare taxes. This means you can benefit from tax savings while securing valuable health and welfare benefits.

Also, remember that these benefits are paid for with pre-tax dollars so they are not eligible to be used as a deduction on your return. For example, health insurance is a common benefit offered by these plans, but you cannot also use these costs as a medical deduction on Schedule A if you paid for them through your cafeteria plan. On the W-2 forms, taxes from wages are not included on any items of the cafeteria plan, like Social Security, Medicare, and withholding. Because of that, you can’t find the benefits of the cafeteria plan in Box 1 of the W-2 form, which is the space allotted for the employee’s wages. Besides that, the cafe 125 plan is not also found in Box 5 for Medicare and Box 3 for Social security due to the fact that they are not taxable.

• This section might detail various pre-tax deductions taken from your salary to fund these benefits, indicating the portion of your income that’s exempt from taxes.
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• But if you select the benefit, your company doesn’t include the benefit as part of your taxable income.

To know whether Section 125 premiums count as taxable wages for state and local income tax, contact your state revenue agency or your employer’s payroll or human resources department. When you contribute to certain benefits through this cafeteria plan, you’re essentially playing a strategic tax game. An HSA can be offered as part of a Section 125 Cafeteria Plan to allow employees to make pre-tax payroll contributions to their HSAs.

The Benefits Not Allowed in a Cafe Plan

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. Cafeteria Plan Benefits for Employees The primary advantage of a Cafeteria Plan to employees is the range of healthcare options they can acquire with Section 125 money to fit their needs. Typically, these pre-tax options include health insurance premiums, retirement contributions, or other benefit options.

They are not taxed and are not included in your W-2 Box 1 wages so you can not deduct them as medical expenses. Your employer’s cafeteria plan offers you this assortment so you can tailor your benefits to your needs. This might mean deciding between different health insurance plans, opting for a certain amount to go into your cafe 125 w2 retirement fund, or even setting aside pre-tax dollars for dependent care. The employer benefit options you see in “Cafe 125” on your W-2 Form refer to a buffet of choices your employer offers you. These options aren’t just about your salary but include various benefits like health insurance, retirement plans, and flexible spending accounts (FSAs).

This plan allows you, as an employee, to choose between taxable benefits, like cash wages, and non-taxable benefits, such as health insurance, retirement plans, or flexible spending accounts (FSAs). While Cafeteria 125 contributions reduce your income tax liability, they also slightly reduce your Social Security wages. This means you’re paying less in Social Security taxes, which could have a minor impact on your future Social Security benefits. However, the immediate tax savings for most employees outweigh this small reduction in future benefits. A Cafeteria 125 plan, also known as a Section 125 plan, is a type of employee benefit plan authorized by Section 125 of the Internal Revenue Code.

When choosing between two prospective employers, a section 125 plan could be the deciding factor. Having Cafe 125 reported on your W-2 does not change the way you prepare and file your tax return. The money deferred to pretax plans should already be subtracted from the total amount of your wages reported in box 1 on your W-2. You should verify that this information is reported correctly before filing your tax return. They are called cafeteria plans because employees are given a list of benefits to choose from, similar to a cafeteria-style menu. The exclusion cannot be more than the earned income of either the employee or the employee’s spouse.