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| Home » Employee Benefits » Section 125 7.15 Cafeteria Plan |
| Section 125 7.15 Cafeteria Plan |
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 Section 125 refers to the section of the Internal Revenue Service (IRS) regulations which allows an employer to deduct employee contributions for certain benefits on a pre-tax basis as long as certain guidelines are followed. If you choose to participate in the Section 125 Plan, all of your health, dental and vision premiums will be deducted from your pay each pay period on a pre-tax basis. This will save you money by reducing the amount of federal, state and local tax you owe.
Example
Assuming a 25% tax bracket and a $25.00 insurance deduction:
| Premiums Withheld Pre-Tax |
Premiums Withheld After-Tax |
| Gross Pay |
$100.00 |
Gross Pay |
$100.00 |
| Insurance Deduction |
-25.00 |
25% Tax Withholding |
-25.00 |
| Gross Pay after Insurance Deduction |
75.00 |
Gross Pay after Tax |
75.00 |
| 25% Tax Withholding |
-18.75 |
Insurance Deduction |
-25.00 |
| Net Pay |
$56.25 |
Net Pay |
$50.00 |
To learn more about the IRS guidelines, please call PSP or click here to visit the IRS website and type "section 125" in the keyword search.
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