Section 125 Plan
section 125 plan
help in promoting savings?
Have you noticed section 125 plan of United States code to save premiums on the life taxes that you pay? Well, read the current article to understand in detail about the plan and how well it will help you save good amounts of money. It is also known as cafeteria plans, flexible plan and other names, which solely depend on the plans purpose. The name has been derived from Title 26 section 125 of United States code, where such plans are excluded from gross income. Not only it does reduces the total gross income for income tax purposes, it also provides an excellent opportunity for an employer to provide healthcare benefits.
Section 125 plan
allows an employee to contribute a particular sum of money into the plan as pre-tax. One will have to notice that these contributions do not come under any State or Federal or Social Security taxes. All the contributions from an employee are placed into an account which will be later used to pay all the allowed expenses for example, premium paid in the form of health insurance, medical supplies, dependent care costs etc. As these contributions do not fall under any taxes, an employee will be in a position to save anywhere between 25 to 50% of their total savings.
Speaking about the importance of section 125 plan to the employer, it still does provide a greater benefit in the larger picture. Since the employee’s contribution is not subject to any security tax, there is no matching contribution that has to be paid by the employer. When calculated, the employer saves 7.65 cents for every dollar that has been contributed by the employee. Now that you have understood in detail about the flexibility plan, it is time for you to look out whether your company has implemented the use of a Section 125 Plan.