Cafeteria

Section 125-the Cafeteria Plan

  • Companies enjoy lower Social Security payroll taxes while increasing employee net income.
  • Allows Employees to pay for medical insurance premiums, unreimbursed medical expenses and

    dependent care costs with “Before Tax Dollars”.

  • Win-Win opportunity for Employers and Employees.
Example:   Employer and Employee Benefits from a Typical Cafeteria Section 125 Plan

Employee
Without Plan With Plan Increase
Gross Monthly Pay $2,500.00 $2,500.00
Medical Insurance Premiums $0.00 ($100.00)
Unreimbursed Medical Expenses $0.00 ($100.00)
Dependent Care $0.00 ($300.00)
Taxable Income $2,500.00 $2,000.00
Federal Income Tax(20%) ($500.00) ($400.00)
State Income Tax(5%) ($125.00) ($100.00)
Social Security Tax(7.65%) ($191.25) ($153.00)
Medical Insurance Premiums ($100.00) $0.00
Unreimbursed Medical Expenses ($100.00)) $0.00
Dependent Care ($300.00) $0.00
Net Paycheck $1,183.75 $1,347.00 $163.25(13.8%)
Employer
Without Plan With Plan Savings
Social Security Tax ($191.25) ($153.00) $38.25
X 12(months)
Net Annual Savings per participant $459.00
Annual Savings (based on 5 participants) $2,295.00