Section 125 Cafeteria Plan
What Is A Cafeteria Plan?
The Internal Revenue Service allows employees to pay some benefit premiums with before tax dollars. All health benefit plans offered in the District - Dental, Vision and the Cancer plans are available for payment through the Cafeteria Plan.
For many employees this becomes a wonderful benefit because it can allow your gross salary to be reduced, which in turn lowers the amount of federal income tax you pay each pay period! You see an immediate tax savings.
How Much Will I save Each Month By Being On The Cafeteria Plan?
It is impossible to predict what everyone will save each month because savings will vary according to which benefits are placed on the Cafeteria Plan and individual salaries and rates of tax. Anyone needing help in calculating their savings should contact their personal accountant.
When premiums are paid through the Cafeteria Plan, your selections are irrevocable for the benefit year unless there is a change in family status as outlined in the Internal Revenue Code, Section 125, and related regulations.
These changes include:
- a divorce
- the death of a child or spouse
- the birth of a child
- the legal adoption of a child
- change in custody of a child
- FMLA leave of absence
- Open Enrollment
- change or loss of employment by employee, spouse or dependent, which results in a loss of coverage
- court ordered medical support
- dependent child turns 26 and ages off parent's insurance
Unless you experience a qualifying family status change, you may not request a change to your coverage for that benefit year. Specific IRS requirements apply even within the listed categories. The Employee Benefits Office must be notified in writing within thirty one (31) days of any applicable family status change in order to make election changes.
Is This Legal?
Absolutely! It is allowed under Section 125 of the tax code. Anyone with doubts or questions can contact the local IRS Office directly for full details.
Will I Have To Pay Taxes On These Benefits Later?
No. The benefit costs are deducted from your salary before taxes, decreasing the amount of salary subject to tax. At the end of the year, the salary that is reported to the IRS and subject to tax is the lower, after benefits amount.
What Does It Cost To Be On The Cafeteria Plan?
It costs you nothing. This is a service provided by North East ISD.