Cafe 125 on a W-2 tax form refers to a cafeteria plan, in which an employer offers workers a choice between various job benefits. These benefits can include medical insurance, life insurance, adoption assistance, assistance with care for dependent elderly relatives, extra paid vacation days and similar.
What’s included in cafeteria plan?
Cafeteria plans allow employees to choose from a variety of pre-tax benefits. These plans are often more flexible than others. Employees have several pre-tax options including insurance benefits, retirement plans, and benefits that help with life events.
What do the codes mean on w2 Box 12?
Box 12 codes A: Uncollected social security or RRTA tax on tips reported to your employer. AA: Designated Roth contributions under a section 401(k) plan. B: Uncollected Medicare tax on tips reported to your employer (but not Additional Medicare Tax) BB: Designated Roth contributions under a section 403(b) plan.
What are some pros and cons of cafeteria benefit plans?
Pros and Cons of a Cafeteria Plan
- Pay Less Tax. Employers do not pay FICA or FUTA taxes on salary reductions amounts.
- Address Employee Needs.
- Cost Control.
- Competitive Benefit Program.
- Improve Employee-Employer Relationship.
- Respond to Work-Force Diversity.
- Better Understanding of Benefits.
Why was Sec 125 passed to allow cafeteria plans?
Sec. 125 was passed in 1978 to allow employers to offer cafeteria plans in which certain qualified benefits are not taxable. Employees can pay for benefits with pretax wages, saving the employees both income and payroll taxes and encouraging participation among lower – paid employees.
Can a dual earner have a cafeteria plan?
As increasing numbers of dual earners had no need for duplicate health care, effective pay inequities resulted for the employees who joined their spouse’s benefit plan and received no benefits from their own employer. Cafeteria plans, allowing employees to choose between cash or benefits, became popular, but the benefits were taxable.
Why are employees allowed to choose between cash and benefits in cafeteria plans?
Cafeteria plans, allowing employees to choose between cash or benefits, became popular, but the benefits were taxable. Disproportionate numbers of lower – paid participants chose cash over benefits, leading to uninsured or underinsured employees.
When is a cafeteria plan found to be discriminatory?
If, under testing, a plan is found to be discriminatory with respect to a plan year, the discriminatory benefits are included in the gross income of the highly compensated or key participants who received them. Highly compensated employees are any employees, or spouses or dependents of employees, who are:
