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Cafeteria Plan, also known as a Section 125 Plan, is a tax-advantaged benefits plan that allows employees to choose from a variety of pre-tax benefits. These plans help reduce taxable income, leading to significant payroll tax savings for both employers and employees.
For a deeper understanding of how these plans work, check out Is a Section 125 Plan Right for Your Business?.
Under a Section 125 Cafeteria Plan, employees can allocate a portion of their salary toward eligible benefits before taxes are deducted. This reduces their taxable income, which means they pay less in federal income tax, Social Security, and Medicare taxes.
Employers can offer a variety of benefits through a Cafeteria Plan, including:
Health Insurance Premiums (medical, dental, and vision)
Flexible Spending Accounts (FSAs) for medical and dependent care expenses
Health Savings Accounts (HSAs) contributions
Group-Term Life Insurance (up to $50,000)
Commuter Benefits (transit and parking expenses)
Payroll Tax Savings: Employers save on FICA (Social Security & Medicare) taxes—typically around $600-$700 per qualified employee per year.
Lower Benefits Costs: Employees’ contributions lower taxable income, reducing the company’s tax burden.
Attract & Retain Talent: Offering pre-tax benefits makes compensation packages more competitive.
Compliance with ACA & IRS Regulations: Properly structured plans help employers meet compliance requirements.
Employers can offer a variety of benefits through a Cafeteria Plan, including:
Lower Taxable Income: Pre-tax contributions reduce overall tax liability, increasing take-home pay.
Affordable Benefits: Employees can pay for healthcare and other essential expenses tax-free.
Flexible Benefit Choices: Employees can tailor their benefits to their individual needs.
A Section 125 Cafeteria Plan must comply with IRS guidelines, ACA (Affordable Care Act) rules, and HIPAA (Health Insurance Portability and Accountability Act). To remain compliant, employers should:
Have a formal plan document outlining eligible benefits and participation rules.
Conduct non-discrimination testing to ensure fairness across employee groups.
Provide proper employee notifications regarding plan options and changes.
External sources, such as SHRM’s guide on Section 125 Plans, offer additional details on structuring compliant benefits.
While standard Cafeteria Plans provide tax savings, Life Strong Care’s Preventative Care Management Program (PCMP) takes it further by:
Managing 100% of administration, requiring no extra work from HR.
Maximizing employer tax savings through a unique self-funded model.
Providing extra benefits to employees with no out-of-pocket costs.
Ensuring full compliance with IRS, ACA, and HIPAA regulations.
Many large corporations, including McDonald's, Subway, and Hilton, have successfully leveraged Section 125 Plans to optimize payroll tax savings and enhance employee benefits. Learn more about how companies are using Section 125 Plans for cost savings.
See how much your company can save with a fully managed Section 125 solution. Talk with an expert today or get a free proposal from Life Strong Care.
Website: https://www.lifestrongcare.com/
Email: support@lifestrongcare.com
Maximize your business’s potential by offering tax-saving, IRS-compliant benefits that make a real difference for your employees.
