Section 125 pretax deductions

1. SECTION 125 PRETAX DEDUCTI ONS

2. INTRODUCTION TO SECTION 125 PRETAX DEDUCTIONS Section 125 pretax deductions allow employees to pay for eligible benefits such as health insurance, flexible spending accounts, and dependent care with pre-tax dollars. This reduces taxable income, increases take-home pay, and lowers payroll taxes for employers. Employers must follow IRS rules to maintain plan compliance.

3. WHAT IS SECTION 125 PRETAX DEDUCTIONS Section 125 pretax deductions refer to payroll deductions made under IRS Section 125, also known as a cafeteria plan. These deductions allow employees to pay for eligible benefits such as health insurance, flexible spending accounts (FSAs), and dependent carewith pre-tax dollars. Key Points: Reduces taxable income for employees Increases take-home pay Lowers employer payroll taxes Must meet IRS rules for compliance

4. BENEFITS Lowers employee taxable income Increases employee take-home pay Reduces federal income tax Reduces Social Security & Medicare taxes Offers pre-tax healthcare savings Allows pre-tax dependent care expenses Improves employee benefit value Enhances employee retention Reduces employer payroll tax costs Supports flexible benefit options

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