What Is Section 125?
Generally speaking, a Cafeteria Plan (section 125 of the IRS code) allows employees certain out-of-pocket medical and dependent care expenses and certain other benefits with pre-tax dollars versus paying these same expenses with after-tax dollars.
Employees take home pay will not be affected!
The employee saves federal income taxes and FICA taxes on the total amount paid through a Cafeteria Plan, and the employer saves on reduced matching payroll taxes.
Employees that participate can select benefits fitting their own needs and convert taxable compensation to nontaxable benefits makes the cafeteria plan an attractive means of offering benefits to employees.